Guide to Captive Insurance Companies

This guide presents a comprehensive examination of captive insurance companies, defined as C-Corporations created specifically to write property and casualty insurance for a limited group of insureds. The document outlines the structure of a typical captive, emphasizing its role as a risk-financing tool that offers greater control and customization over risk management compared to traditional insurance models. The guide describes various benefits of establishing a captive insurance company, including stabilized budgets, incentives for loss control, improved claims handling, and tailored coverage options. It discusses the financial advantages of captives, such as direct access to wholesale reinsurance markets and improved cash flow management. Additionally, the document highlights the types of risks suitable for a captive, including low-frequency/high-severity claims and high-frequency/low-severity claims. The guide further details the types of captives, notably 831(a) and 831(b), and the implications of recent legislation affecting captive insurance operations.