What Are Captive Insurance Companies?

For many large industrial and commercial businesses the amount of risks being assumed during any given year is a fast moving target. Companies sometimes try to mitigate these risks is by forming a captive insurance company, which will insure the risks of the parent company or an affiliate.

Business Structure

Captive insurance companies are modeled similarly to other for-profit businesses complete with a board of directors, managers and employees. However, their primary function is to meet the specific insurance needs of their partner company.

Benefits

The major benefits of creating a captive insurance company are retaining underwriting profits, having more control over the cost of premiums and having insurance products tailored for the company.

Domicile

A captive insurance company can be licensed by many different jurisdictions. The captive's primary jurisdiction is known as its domicile.

Licensure

Several factors may influence where captive insurance companies seek licensure. However, the most common factors are capitalization requirements, tax rates, fees and regulation policies.

Location

Companies sometimes find offshore locales such as Bermuda, The Cayman Islands, Ireland and the British Virgin Islands more favorable for establishing a captive insurance company. However, the states of New York, Utah, Arizona, Hawaii, Nevada and several others serve as the domicile for hundreds of captive insurance companies.

References

• Utah.gov