A captive insurance company primarily insures the risks of its owners and sometimes related or affiliated firms and returns underwriting profit and investment income. These earnings would otherwise be retained by a traditional insurance carrier. Captives are insurers owned by the insured and organized for the main purpose of funding the owner's risks that actively participate in decisions influencing its underwriting, operations and investments.
Captive insurance arrangements can be structured in several different ways, including the following:
Single Parent Captives
Often described as 'pure' captives, these are companies with a single owner to whom they provide insurance coverage. They are usually monitored by a risk manager or financial officer at the parent company. Some are managed by a domiciled captive insurance management company.
This type of captive is formed by an established association to provide insurance coverage for members. Ownership rests with the association or individual members. They usually have a financial expert at the association level with prime responsibility, or outsource this function to a management company, broker or consultant.
Industry captives are owned by companies within the same industry that have come together to solve a specific insurance problem. The stockholders generally appoint a board of directors to whom the management company reports.
An agency-owned captive is a reinsurance company owned by an agent or group of agents. These are formed by brokers or intermediaries to participate in the programs for their clients. This approach is considered to be a strong marketing tool to reinsurers as it demonstrates the agent is prepared to join them on the risk.
A 'rent-a-captive' insures the risks of its members and returns underwriting profit and investment income participation to the insureds. Certain companies 'rent' their surplus to entities wishing to establish a self-insurance program but not their own captive.
Protected Cell Companies
Protected cell companies (PCCs) are essentially rent-a-captives with a special difference. PCCs allow renters to shield their capital and surplus from other renters in the captive as long as the rent-a-captive's owner remains solvent.
Questions about Forming a CAPTIVE INSURANCE COMPANY in Washington, D.C? Visit www.disr.washingtondc.gov or contact 202-727-8000 or firstname.lastname@example.org