Captive Insurance
An insurance company formed by a business to insure its own risks.
Overview
Structures range from single parent pure captives through group captives to rented cells. The appeal is retaining underwriting profit instead of paying it away, direct access to reinsurance markets, control over claims and wording, and favorable domicile law in places such as Vermont, Bermuda, and Cayman. Costs are real: capitalization, actuarial studies, management fees, audits, and taxes, so captives tend to pay off above premium volume thresholds in the low millions. Risk retention groups, a congressional creation, are group captives writing liability for members such as physicians and trucking firms. Regulators scrutinize captives for substance, captive managers run the day to day, and large firms operate hundreds of them.
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