Captive insurance companies can take a number of different forms. The following definitions are intended to help differentiate some of the various types of captives.
A single parent captive is owned and controlled by a single parent organization and is formed as a subsidiary of that organization. The captive insures the parent organization or other subsidiaries of the parent. Subject to regulatory approval it may also insure the risks of controlled third parties.
A group captive is owned and controlled by multiple non-related organizations. It is formed as an independent entity and insures the risks of its owners.
An association captive is owned by members of a common industry or trade association and is designed to insure the risks of that industry among its members. Participation in the captive program is limited to members of the association. Association captives are a means to deliver value added services to its membership.
A risk retention group is an entity licensed under the Federal Liability Risk Retention Act. It is owned by its insureds and is authorized to underwrite the liability risks of its owners only. Owners must be from a homogenous industry group. A risk retention group is licensed as a captive insurance company in its domicile of choice and may operate throughout the US provided it properly registers with each state.
A reciprocal insurer is an unincorporated association of subscribers operating individually and collectively through an attorney-in-fact to provide reciprocal insurance among themselves. This type of captive refers to the organizational structure. It is an alternative to a stock or mutual form. Most domiciles allow for group captives, association captives or risk retention groups to be formed as reciprocal insurers.
A rent-a-captive is an insurance company that rents its capital and services to insureds who wish to create a captive program but do not want to invest in and own an insurance company. The owners of rent-a-captive facilities will usually require collateral from insureds to protect the aggregate participation in the captive program.
These entities are all forms of rent-a-captives. Their distinguishing feature is that the assets and liabilities of one captive program (cell) are legally separated from the assets and liabilities of other captive programs. Traditional rent-a-captive structures have no such legal separation but require an indemnification from their insureds for liabilities from their captive programs. Most major captive domiciles have passed regulations creating the framework for the legal separation of cells within the rent-a-captive. Different terminology is used to refer to these new entities in different domiciles: Bermuda (segregated cell companies), Cayman Islands (segregated portfolio companies), South Carolina (protected cell companies) and Vermont (sponsored captives).
An agency captive is owned by insurance agents and typically allows the agency to share in the underwriting profits and investment income of its book of business. It also demonstrates to insurers and reinsurers that the agent is committed to the profitable underwriting of that business.
A branch captive is an on-shore (US) arm of an off-shore captive. Branch captives are typically used to underwrite employee benefits under ERISA. These benefits can only be offered by a US insurer.
The above information is provided by Strategic Risk Solutions, (www.strategicrisks.com) captive manager for Green Mountain Sponsored Insurance Company, for the benefit of our clients.
Over 1,000 companies have already realized the advantages of captive insurance operations licensed in Vermont. In fact, for several years now, Vermont has ranked as the number one captive domicile in the United States and the number three-ranked domicile internationally.
Vermont’s success to date can be attributed to a combination of factors, not the least of which is the ongoing leadership of Vermont’s Governors, both past and present, and both houses of the State Legislature who continue to uphold Vermont’s longstanding tradition of providing solid support for this state’s captive industry. This fact ensures that as captive industry needs change, captive legislation in this state evolves and is further enhanced with timely and meaningful changes made to Vermont captive law.
Vermont continues to be recognized as a quality domicile by captive owners, brokers, regulators, and others in the industry due to its high level of professionalism. An ever-increasing number of companies are further recognizing Vermont as their captive insurance domicile of choice.
Managed by Strategic Risk Solutions, Vermont’s leading Captive Management Firm all Green Mountain clients are guaranteed a level of service that is second to none.
Providing a full range of captive management services in the formation of captives and their on-going operation, SRS services are tailored to fit the individual needs of our clients. We enforce a strict peer review process to ensure the accuracy and quality of our work including an annual stewardship report detailing our activities during the year.CONTACT US