Large corporations sometimes prefer to keep their insurance risk in the family. A captive insurer is a subsidiary established primarily to insure or reinsure the risks of its parent company and affiliated entities. It offers an alternative to buying coverage exclusively from the commercial market.

Captives can reduce costs, provide coverage for hard-to-place risks, and give the parent direct access to reinsurance markets. They are subject to licensing and capital requirements in their domicile, which may be an onshore state or an offshore jurisdiction with specialized captive laws. Professional management and actuarial support are essential.

Tax and regulatory treatment depends on whether the captive is treated as a true insurance company. Proper risk distribution and formal policy issuance are required for that treatment. Many captives evolve from pure single-parent vehicles into group or diversified structures over time.

• Subsidiary that insures its parent’s risks
• Provides cost and coverage flexibility
• Subject to domicile licensing rules
• Requires genuine risk transfer and capitalization