Types of Captives

Captives can be structured in several different ways to provide appropriate vehicles for a wide range of risk & circumstances. Any one of the following structures can be considered:

  • Single Parent Captive
    Often described as 'pure' captives, these are companies with a single owner to whom they provide insurance coverage. A risk manager or financial officer at the parent company usually monitors them. A domiciled captive insurance manager manages the captive.
  • Association Captive
    A captive formed by an established trade association or members of an industry to provide insurance coverage for members. Ownership rests with the association or individual members. Liability risks such as medical malpractice are frequently insured in this way. They usually have a financial expert at the association level with prime responsibility, or outsource this function to a captive insurance manager.
  • Industry Captive
    Industry captives are owned by organizations within the same industry that have come together to solve a specific insurance problem. The stockholders generally appoint a board of directors to whom the management company reports.
  • Rent-a-Captive
    Insurance companies that provide access to captive facilities without the user needing to capitalize his own captive. The user pays a fee for the use of the captive facilities and will be required to provide some form of collateral so that the rent-a-captive is not at risk from any underwriting losses suffered by the user.
  • Protected Cell Company
    Protected cell companies (PCCs) are essentially Rent-a-Captives with a special difference. PCCs allow renters to shield their capital and surplus from other renters in the Captive as long as the Rent-a-Captive's owner remains solvent.
  • Diversified Captive
    Diversified captives underwrite unrelated risks in addition to the parent organizations business.
  • Agency Captive
    Agency captives are formed by insurance brokers or agents to allow them to participate in the high-quality risks, which they control. These are rarely used because of legislative mandates regarding agent liability.
  • Special Purpose Vehicle (‘SPV’s)
    Special purpose vehicles are used to secure risk. They are reinsurance companies that issue reinsurance contracts to their parent and cede the risk to the capital markets by way of a bond issue.