What are the Different Types of Captives?
 

Captive insurance companies can take a number of different forms. The following definitions are intended to help differentiate some of the various types of captives.

Single Parent (or Pure) Captive

A single parent captive is owned and controlled by a single parent organization and is formed as a subsidiary of that organization. The captive insures the parent organization or other subsidiaries of the parent. Subject to regulatory approval it may also insure the risks of controlled third parties.

Group Captive

A group captive is owned and controlled by multiple non-related organizations. It is formed as an independent entity and insures the risks of its owners.

Association Captives

An association captive is owned by members of a common industry or trade association and is designed to insure the risks of that industry among its members. Participation in the captive program is limited to members of the association. Association captives are a means to deliver value added services to its membership.

Risk Retention Groups

A risk retention group is an entity licensed under the Federal Liability Risk Retention Act. It is owned by its insureds and is authorized to underwrite the liability risks of its owners only. Owners must be from a homogenous industry group. A risk retention group is licensed as a captive insurance company in its domicile of choice and may operate throughout the US provided it properly registers with each state.

Reciprocal Insurer

A reciprocal insurer is an unincorporated association of subscribers operating individually and collectively through an attorney-in-fact to provide reciprocal insurance among themselves. This type of captive refers to the organizational structure. It is an alternative to a stock or mutual form. Most domiciles allow for group captives, association captives or risk retention groups to be formed as reciprocal insurers.

Rent-a-Captive

A rent-a-captive is an insurance company that rents its capital and services to insureds who wish to create a captive program but do not want to invest in and own an insurance company. The owners of rent-a-captive facilities will usually require collateral from insureds to protect the aggregate participation in the captive program.

Sponsored Captives, Segregated Cells and Protected cells

These entities are all forms of rent-a-captives. Their distinguishing feature is that the assets and liabilities of one captive program (cell) are legally separated from the assets and liabilities of other captive programs. Traditional rent-a-captive structures have no such legal separation but require an indemnification from their insureds for liabilities from their captive programs. Most major captive domiciles have passed regulations creating the framework for the legal separation of cells within the rent-a-captive. Different terminology is used to refer to these new entities in different domiciles: Bermuda (segregated cell companies), Cayman Islands (segregated portfolio companies), South Carolina (protected cell companies) and Vermont (sponsored captives).

Agency Captive

An agency captive is owned by insurance agents and typically allows the agency to share in the underwriting profits and investment income of its book of business. It also demonstrates to insurers and reinsurers that the agent is committed to the profitable underwriting of that business.

Branch Captive

A branch captive is an on-shore (US) arm of an off-shore captive.  Branch captives are typically used to underwrite employee benefits under ERISA. These benefits can only be offered by a US insurer.

 

The SRS Guide to Captives contains historical information that may no longer be accurate. It is for informational purposes only and does not constitute advice. No reliance should be placed on the information contained within this portion of the site and guidance should be sought from SRS regarding captives and alternative risk solutions. No information contained in the SRS Guide to Captives may be reproduced or copied in any format without the express permission of SRS.

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