What is a Captive?

A captive insurance company is a company established to insure the risks of organizations affiliated with its owner(s). Traditionally, a captive insurance company may only be formed with the permission of regulatory authorities in the insurer's home territory (its domicile). An Insurance Commissioner, either a civil servant or a political appointee, monitors insurers' operations to ensure that specified solvency and other regulatory parameters are observed.

There are 5,000± captive insurance companies in the world, with most being sponsored by United States entities. Although sponsored by U.S. based companies, most captive are domiciled (incorporated) outside of the U.S.

Many conventional insurance companies began their corporate existence as captive insurers and grew into large-scale insurance companies. USAA, Highlands, and American General are cases in point.

Small insurance companies benefit from tax advantages to help facilitate their growth, which in part compensates for the complexity and cost of their structure and operations. Nonetheless, over the last 80 years less than 1300 insurance companies have been issued a tax exempt determination letter ruling by the Internal Revenue Service. The expertise of the Capstone Team has lead to what is believed to be the industry's best track record in obtaining such rulings. Together with your captive insurer's legal and tax advisors, our adherence to high standards of ongoing administration helps ensure the continued maintenance of the tax exemption determination.

Captive insurance planning is an alternative risk management and risk financing technique that can be used to accomplish several purposes including insuring the hidden risks of its insureds. See Why Form a Captive?

Usually a captive insurance company writes insurance coverages on closely affiliated businesses that either include the captive's parent or the affiliated businesses that share a common parent with the captive.

Captives come in a variety of shapes and sizes, some of which are:
  • Single-Owner Captives. A person establishes a "single owner captive" to insure its own risks and the risks of its subsidiaries and affiliates. Many single-owner captives also provide coverage for other, non-affiliated organizations. Single-owner captives that insure only affiliated risks are termed "pure" captives. Services to these clients form the core of Capstone's business.

  • Group Captives. These captives are owned by multiple, non-related organizations (policyholders). The captive is usually sponsored by a trade group such as homebuilders, franchisees, group medical practices or hospitals, or other professional or industrial groups. Capstone offers services to these types of clients.

  • Agency Captives. These captives are owned by insurance brokers or agents and insure some portion of the insurance sold by its agency or broker shareholders. Capstone offers limited support services to these types of clients.

  • Rent-A-Captives. These captives are pre-established entities that insure the risks of unrelated parties for a fee. Capstone offers rent-a-captive services on a fee basis using well-capitalized and established captive insurers.

    Capstone Associated Services, Ltd. specializes in working with single-owner captives with projected annual premiums of under $1,200,000, where the captive insures profitable affiliated insureds.

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