Forms of Captives
Forms of Captives
All captive insurance companies are owned and controlled by their insureds –but they may take on various forms: Pure Captive (Single Parent): A pure captive is owned and controlled by one company and insures the risks of the parent, subsidiaries, and affiliates. These can be formed as a corporation or LLC.
Association Captive
An association captive is a captive insurance company that is owned and controlled by two or more non-affiliated organizations that the captive insures. The association captive can either insure similar types of risks for businesses within a common industry, or it can insure non-homogeneous businesses and insure different risks. These can be formed as a corporation, LLC, or reciprocal.
Reciprocal Captive
A sub-designation of Association captives where the non-affiliated organizations enter into a collective series of contracts (policies) with each other. An Attorney-in-Fact administers the policies for the group. The reciprocal is an unincorporated legal entity. This is a structured form rather than a type of captive.
Industrial Insured Captive
A sub-designation of Association captives where the captive insures the risk of members of an industrial insured group and their affiliates. An industrial-insured group is one that collectively owns or controls the industrial-insured captive or is an RRG. An industrial insured is an operating entity that has at least 25 employees, total annual premiums of $25,000 or more, and uses a full-time employee that acts as an insurance manager. These can be formed as a corporation, LLC, or reciprocal.
Risk Retention Group (RRG)
This can be a sub-designation of Industrial Insured Captive, Association Captive, or their own type. RRGs are enabled and protected by the federal Liability Risk Retention Act. An RRG is a group captive that is domiciled in one state but often registers to operate in multiple states similar to a traditional insurance company. At present, RRGs are limited to insuring only liability exposures. RRGs can form as a corporation, LLC, or reciprocal.
Reinsurance Captive
Reinsurance captives are formed similarly to a pure or association captive but have 50% of the normal capitalization requirement. Branch Captive: Branch captives are formed as a local principal office location for a foreign captive insurance company to operate in this state. Only business conducted within this state by the branch captive is regulated, but the main captive is observed for proper conduct.
Protected Cell Captive
A structure that permits incorporated cells to maintain separate assets and liabilities while each incorporated cell carries out its own distinct captive insurance operations. These independent insurance operations must be fronted by another insurance carrier licensed to operate as an insurer. The structure provides efficiencies and cost savings through the sharing of administrative and service provider expenses.
Special Purpose Captive
Any captive insurance company that does not meet any of the above-listed types and/or definitions, or is formed for the benefit of a political subdivision of this state.
Series LLC Captive
(Not a statutory type and not listed on the COA but a form of captive) Each series member or series business unit (SBU) maintains separate assets and liabilities while carrying out its own distinct captive insurance operations. These operations can be directly written or reinsured from another licensed carrier by the SBU. The structure provides efficiencies and cost savings through the sharing of administrative and service provider expenses. These are classified as Special Purpose captives for flexibility of business plans and commissioner discretion of capital and surplus requirements.
Agency Captive
(Not a statutory type and not listed on the COA but a form of captive) Agency captives are formed and controlled by insurance brokers/agents who have chosen to participate, together with traditional insurance companies, in the risks of their own clients. These can be formed as a corporation, LLC, Protected Cell, or Special Purpose Series LLC and are commonly licensed as a reinsurance captive.
Dormant Captives
If the owner of a captive insurance company of any type (except RRG) wishes to keep their captive in active status but does not wish to write insurance through their captive for a short duration, they can trade their Certificate of Authority for a Certificate of Dormancy. The captive must have run off all of its insurance business, have no remaining insurance policies issued, and no remaining liabilities or reserves. The captive then applies for dormant status and if dormancy is approved by the commissioner, will only pay an annual dormancy tax of $1,000 for any portion of the preceding year the captive goes dormant, and only has to maintain $25,000 in capitalization. This Certificate of Dormancy is only valid for a 5-year duration. Captives in a dormant status are not subject to any other taxation or examinations and supply only a report of the captive’s financial condition within 90 days of its fiscal year-end.