Captive Insurance Basics

What is a Captive Insurance Company?

A "captive insurance company" is a company that has been established to insure the risks of a specific organization(s). Although risk management policies exist in the marketplace, most carry exclusions that force business owners to absorb the heavy costs of claim coverage. Owning a "captive" can eliminate these exclusions, as specific or “unusual” risks can be written into the policy.

A "captive" is formed with the permission of regulatory authorities. An insurance commissioner, either a civil servant or a political appointee, monitors the insurers' operations to ensure that certain criteria are met, including solvency and other regulatory parameters.

There are 6,000± captive insurance companies in the world, with most being sponsored by United States entities. Although sponsored by U.S. based companies, most captives are incorporated outside of the U.S.

Benefits of Captive Insurance Companies

Many conventional insurance companies such as Highlands and American General began their corporate existence as captive insurers and grew into large-scale insurance companies.
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. Over the last 80 years, fewer than 1,300 insurance companies have been issued a tax exempt determination letter ruling by the Internal Revenue Service.

The expertise of Capstone and its affiliated law firm has led to what is believed to be the industry's best track record in obtaining such rulings. We are a first-class team of players that delivers risk management, insurance, regulatory, financial, legal, tax, accounting, and regulatory services.

Our turnkey support system works directly with clients in their captive planning. 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.

Types of Captive Insurance Companies

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

There are various types of captives in operation today.

  • 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. Serving this type of client forms 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 agency captive 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 single-owner captives with projected annual premiums of under CURRENT_PREMIUM_CAP million. The captive insures a profitable, affiliated company (the insured).

Would you like to know more about how your business can benefit from owning a captive? Call us at WEB_TEL or complete the short form below.

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