A typical captive insurance company is a wholly owned subsidiary of an industrial, commercial or government organisation which exists to insure all, or a selection of, the risks of that organisation and its affiliates.

Captives may be owned by one organisation (a single parent captive) or by a number of different bodies (group or association captives). There would normally be a common link of some kind between the owners of a group captive that could also be organised as a mutual insurer where the ownership is vested with the policyholders. A more recent development is referred to as a ‘rent-a-captive’ that is a single insurance company that offers captive facilities to organisations for which a dedicated captive may not be a practical option.

Captive insurance companies have provided significant benefits to thousands of organisations throughout the world by improving their insurance arrangements, smoothing their cash flow and contributing to their profits and balance sheet strength.

The increasing use of captives indicates a trend towards changes in the structure of many organisations and the way they finance their risks. They are an essential part of most risk management programmes and represent a long term strategy that, with proper planning and commitment, can bring immense benefits.

There are no restrictions on the types of risk that a captive can be used to insure. Captive reinsurance companies are also a popular tool in modern risk management and are often used in conjunction with traditional insurers or as part of a comprehensive programme. Many larger organisations have several different captives, each specialising in a particular area.