Types of Captives

This type of captive insures the risks of related companies and is owned and controlled by the related company or its affiliates. It is often the choice of larger insureds with more sophisticated risk management profiles.

This is the most common form of captive and can be organized under the laws of any jurisdiction with a captive insurance statute.

This type of captive is typically established and capitalized by a third party (e.g. captive managers, consultants, insurers, and investors). Participating insureds own their own protected cell or series business unit (SBU) that by statute cannot be comingled with another participant.

The third party or sponsor charges a fee for providing a facility that allows insureds to participate in their own insurance risk and garner the financial benefits of a single parent captive at a lower operating cost.

This type of captive is a licensed insurer or reinsurer that is formed and owned by an industry, trade, or heterogeneous group of employers, and is strictly for the benefit of its members.

A group or association captive provides a vehicle for insureds that may be too small to effectively assume a large risk position within their own single parent or sponsored captive arrangement. Participants in this type of captive can share or pool their insurance risks and efficiently spread the fixed costs of the captive among its many members.

Agency captives are owned by insurance agents in order to align interests of producing profitable business with their insurance companies and to create a new revenue source beyond commissions for the agency. Unlike other captive types, agency captives are not designed to provide underwriting profits directly to the insureds.

These captives can be set up for agencies that have high risk tolerances and can meet the capital requirements of these arrangements. For policyholders, the captive is essentially invisible but they tend to enjoy a more robust risk management and safety program which often leads to performance-based rate reductions in future policy years.