Common Captive Types Include:
- Pure captives
- Agency captives;
- Group captive (click here to read about group health insurance captives);
- Association captive
- Risk Retention Group captives
- Segregated and protected cell captives
- Series LLC captives
- Special purpose reinsurance vehicles
- Enterprise risk or micro-captives (US qualifying “831(b)” captives)
Captive Types Defined and Differentiated
Pure Captive – (sometimes known as “Single Parent Captives”)
Pure captives insure only the risks of related companies (parent, affiliates and controlled unaffiliated businesses). This is the most common type of captive in use in nearly every industry around the world. Whether a captive has a single owner or not has no bearing on whether it is a “pure” captive. Its legal purpose and scope determine its proper characterization and whether a domicile’s laws are a good fit.
Owned by one or more licensed insurance agencies or brokers to reinsure their preferred client risks.
Two or more owners (profit or non-profits) who form a captive to insure similar risks usually in the same industry. Group captives are common to share the cost of captive formation and operation. Most US domiciles require group captives to be pure, to not write any unrelated business.
Sponsored and owned by a trade, service or industry association for the benefit of its members. Association captives make sense when sufficient member interest and commitment exists or when needed insurance is not readily available or affordable in the marketplace.
Risk Retention Group (RRG)
RRGs are a special category of captives that operate much like group or association captives but under special federal legislation allowing operation in all 50 states even though licensed only in the state of domicile. RRGs have been widely used to cover professional liability risks, particularly within the healthcare industry by service providers. RRGs are generally the most involved captives in terms of operational complexity, cost and regulatory oversight and review.
RACs provides ‘captive’ facilities to non-owners for a fee and use internal structures to isollate participant’s risks. They are often used for programs too small to justify a separate captive’s new capitalization requirements, administrative costs and management complexity. RACs are generally structured as cell captives.
Segregated Portfolio or Protected Cell Captives (SPC or PCC)
SPC and PCC captives generally have a sponsor who provides the start-up capital and expertise. Participants liability and risks are segregated contractually. These types of captives generally require more initial capital than other captive types. Non-US jurisdictions innovated cell and segregated portfolio captives. Many US domiciles recently enacting supportive statutes due to the value and increasing popularity of cell captive structures. PCCs essentially bring the value of captives to a larger customer base that could not afford or justify forming independent captives.
Series or Cell Captives – Series Limited Liability Company or Corporate Cell Captives
Series LLCs and Cell captives are a new legal hybrid. While over 10 US states now allow series or cell structures, only a few actually have experience with these hybrid captive structures which can be extremely competitive with any offshore domicile’s operational costs.
Special Purpose Vehicles (SPV)
SPVs are specialized captive reinsurance companies used to create alternative finance sources to cede (layoff) portions of your risk portfolio to 3rd parties, usually investors in the capital markets.
Captive insurance companies with similar attributes are sometimes given different names between domiciles. Due to the global nature of the captive industry, there is no standardization. Even the various US states enact statutes with variations. So legally speaking there are many types of captives authorized and given various names not referenced here.