What Does Captive Insurance Company Mean?
A captive insurance company is a wholly owned and controlled subsidiary created by another corporation, known as its parent company, to insure itself against certain risks to which the parent company is exposed to. Aside from protecting the insured parent company and the parent company’s clients against certain risks, a captive insurance company also benefits from the profitability of the captive insurer.
Insuranceopedia Explains Captive Insurance Company
A captive insurance company is a type of self-insurance wherein a parent company uses its own capital to create an insurance company to protect itself financially while enjoying more control over its insurance coverage, including the extent of risks they would like to insure. The most common reason why companies do so is because it offers insurance protection that works well within the budget of the company.
Captive insurance companies can be created only when there is a special enabling legislation. It may be established offshore in countries like Bermuda, Cayman Islands, Singapore and Dubai, among many others. It may also be created in the United States, although not all states give licenses for captives to operate. The place where a captive insurance company is created and has jurisdiction over it is called its domicile.