Captive insurance companies have a long history worldwide and in the United States. A majority of states have captive insurance legislation in place and onshore jurisdictions such as Vermont, Utah, Delaware, Tennessee, Arizona and Connecticut promote their captive legislation as an economic engine to attract new businesses.
In general, a captive insurance company is a wholly owned subsidiary that insures or reinsures only the risks of its parent company and its affiliates. Captives can take other forms, such as protected cell, association or group captives — but all offer the owner an opportunity to stabilize premium payments, address policyholder needs and address cost prohibitive or unavailability insurance coverage.
The ownership of captive insurance companies is no longer confined to Fortune 500 companies. In 2013, protected cell captives and small captives, also known as 831(b) captives, experienced strong growth. The expanded use of small captives allowed middle market companies to reap the benefits of a captive arrangement on a cost effective basis.…