A captive insurance company typically is defined as an insurance company that an entity that is or affiliated with its policyholders owns and controls. Its primary purpose often is to insure the risks of its owners or its owner’s affiliates. And, its owners (and, sometimes, its policyholders) benefit from the captive insurance company’s underwriting profits and investment income.
The owner of a captive insurance company chooses to:
put its own capital at risk when it chooses to create its own insurance company,
work outside of the traditional commercial insurance marketplace,
achieve its risk management and financing objectives on its own terms.
Let us review these three essential features of a captive insurance company:
Owners of Captive Insurance Companies Put Their Own Capital at Risk
Anyone who chooses to own a captive insurance company must be willing and able to invest its own resources. In return, the owner of a captive insurance company benefits from its profitability.
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