What is a Captive?
A captive insurance company is a closely held insurance company that is owned and controlled by its insureds.
A captive is an insurance company licensed under the laws of its domicile, many of whom have specific regulations applying to captives. Depending on the situs you have chosen to set up a captive it may not qualify as an admitted insurer in any U.S. state. It also may qualify in any U.S. it just depends on the goals of the company or risk retention group.
There are approximately 5,000 captives worldwide. Collectively captive insurance companies have net written premium in excess of $50 billion, capital and surplus of more than $100 billion and total invested assets of more than $225 billion.
Captive insurance companies vary according to:
- The number of owners: single parent versus group.
- Legal structure: captives formed by groups of owners in particular can take a number of different legal forms including, stock, mutual insurance company, and reciprocal insurer
- Source of capital: rent-a-captive and sponsored captives allow insureds to create a captive program using a third party’s risk capital.
- Scope of risks underwritten: many captives have expanded their focus from the property and casualty risks of their owners to include employee benefits and/or the risks of third parties
The key to remember about captives is that you must have an actual insurance risk and it must be properly documented. It is very important that a proper insurance audit be completed each and every year. Hehr & Hehr Co. L.P.A. has some good relationships with exceptional property and casualty agencies that can make a determination of the insurable risks.