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🏢 '''Captive insurance''' is a form of self-insurance in which a parent company — or group of companies — creates a licensed insurance subsidiary to underwrite its own risks rather than transferring them entirely to the commercial [[Definition:Insurance carrier | insurance market]]. The captive operates as a fully regulated insurer, issuing [[Definition:Insurance policy | policies]], collecting [[Definition:Premium | premiums]], establishing [[Definition:Loss reserve | reserves]], and paying [[Definition:Insurance claim | claims]], but its primary or sole insured is its parent organization or affiliated entities. This structure has grown into a mainstream risk-financing tool, with thousands of captives domiciled worldwide in jurisdictions ranging from Vermont and Hawaii to Bermuda and Guernsey.

⚙️ A company typically forms a captive after concluding that the commercial market overcharges for certain risks, imposes restrictive coverage terms, or simply lacks capacity for niche exposures. The parent funds the captive with initial [[Definition:Capital and surplus | capital]], and the captive then writes [[Definition:Insurance policy | policies]] covering risks such as [[Definition:Product liability insurance | product liability]], [[Definition:Workers' compensation insurance | workers' compensation]], or [[Definition:Professional liability insurance | professional liability]]. Many captives purchase [[Definition:Reinsurance | reinsurance]] to manage catastrophic or volatile layers, and some access the broader market by participating in [[Definition:Risk pool | risk pools]] or fronting arrangements with admitted [[Definition:Insurance carrier | carriers]]. Actuaries help price the captive's [[Definition:Premium | premiums]] to reflect the parent's actual [[Definition:Loss experience | loss experience]], and the captive must file financial statements and undergo periodic [[Definition:Captive audit | audits]] in its [[Definition:Domicile | domicile]].

💰 The strategic appeal goes well beyond cost savings on premiums. Captives give their owners direct access to the [[Definition:Reinsurance | reinsurance]] market, create a profit center when [[Definition:Underwriting profit | underwriting results]] are favorable, and generate investment income on reserves that would otherwise sit on a commercial insurer's balance sheet. They also instill stronger [[Definition:Risk management | risk management]] discipline, because the parent retains the financial consequences of poor loss performance. For industries with hard-to-place or emerging exposures — think [[Definition:Cyber insurance | cyber risk]], environmental liability, or supply-chain disruption — a captive can fill coverage gaps that no standard policy addresses. These advantages explain why captive formation has accelerated even as the traditional market has softened in recent cycles.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Captive audit]]
* [[Definition:Risk retention group (RRG)]]
* [[Definition:Fronting arrangement]]
* [[Definition:Self-insured retention (SIR)]]
* [[Definition:Domicile]]
* [[Definition:Alternative risk transfer (ART)]]
{{Div col end}}

Definition:Captive insurance - Revision history

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