Define: Captive Insurance Company

A captive insurance company is an insurance company that is formed by a parent company or a group of related companies to provide insurance coverage exclusively to its own members or affiliates.

Companies form captive insurance companies to gain more control over their insurance programs, reduce costs, and access coverage that may not be available in the traditional insurance market.

Yes, forming a captive insurance company is legal in many jurisdictions, including the United States. However, it is important to comply with the specific regulations and requirements of the jurisdiction in which the captive is formed.

Some benefits of having a captive insurance company include potential cost savings, customized coverage, improved risk management, potential tax advantages, and the ability to retain underwriting profits.

In general, any company can form a captive insurance company, but it requires careful consideration of the company’s risk profile, financial stability, and commitment to risk management.

Yes, captive insurance companies are subject to regulations and oversight by the insurance regulatory authorities in the jurisdiction where they are formed. These regulations may vary depending on the jurisdiction.

A captive insurance company is typically funded through premiums paid by its members or affiliates. It may also receive additional capital contributions from its parent company or external sources.

Yes, a captive insurance company can reinsure its risks with other insurance companies to mitigate its exposure and manage its underwriting capacity.

Some potential risks and challenges of forming a captive insurance company include regulatory compliance, financial stability, underwriting profitability, claims management, and the need for ongoing risk management and governance.