About Captive Insurance Companies

A captive insurance company is an insurance company that insures or reinsures the risks of its parent, affiliates or certain unrelated entities. It is an alternative to the traditional market and is a risk management tool that can be designed to meet and/or assist in meeting the risk management needs of its owners or members.

There are numerous reasons to form a captive. Some of the most common are:

  • Reduced insurance costs based on a company’s own historical loss experience
  • Stabilized pricing with a more consistent year-over-year premium cost
  • Freedom to insure any risk and to customize the terms and conditions of its policies
  • Direct access to reinsurance markets that have fewer regulatory barriers and can provide coverage at a lower cost
  • Capture underwriting profit

Your company may be a good candidate to form a captive if it has a good loss record and risk management practices, the ability to finance its own exposure, or unusual or hard-to-place risks.

The North Carolina Captive Insurance Act allows for the following types of captive insurance companies:

Types of NC Captives

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Insures risks of its parent and affiliated companies or a controlled unaffiliated business or businesses.

Consists of a core and an indefinite number of incorporated or unincorporated cell entities which are kept segregated from each other. Each cell has dedicated assets and liabilities ascribed to it, and the assets of an individual cell cannot be used to meet the liabilities of any other cell. This type of captive is typically attractive to smaller organizations as an efficient and convenient risk management strategy as it allows them to insure their own risk without establishing their own captive insurance company.

A captive insurance company that does not meet the definition of any other type of captive insurance company defined in the North Carolina Captive Insurance Act and is designated as a special purpose captive insurance company by the Commissioner. For example the structure of an agency or group captive could be licensed as a Special Purpose Captive Insurance Company.

Insures risks of the member organizations of an association, their affiliated companies and the risks of the association itself.

Insures the risks of an industrial insured group and its affiliated and controlled unaffiliated businesses. An industrial insured is an insured that procures the insurance of any risk or risks by use of the services of a full-time employee acting as an insurance manager or buyer, whose aggregate annual premiums for insurance on all risks is at least $25,000 and who has at least 25 full-time employees.

Formed to reinsure the risk of an affiliate or parent, usually a life insurance company. They issue reinsurance contracts to their parent or affiliate and then cede the risk to the capital markets by way of an insurance securitization.

Formed pursuant to the Liability Risk Retention Act of 1986, 15 U.S.C. § 3901, et. seq. Risk retention groups are restricted to writing only liability coverage. A risk retention group, once licensed in one state, may operate nationwide provided it properly registers with all other states in which it proposes to solicit or write insurance.