What is a Captive?
In its most strict definition, a captive is an insurance subsidiary of a company formed to insure or reinsure the risks of its parent.
Typically, captives are established to fill gaps in insurance coverage where the conventional insurance market either cannot provide coverage, or where the cost is considered economically prohibitive. Modern day captives have been around since the 1960’s when Bermuda established, by way of private acts of parliament, the formation of companies specifically to insure the risks of their U.S. based parent companies.
Many insurers operating as household names such as Allstate, which was once Sears’ captive insurance company, began as captives and expanded into full fledged commercial insurance companies providing insurance coverage to individuals and corporations worldwide.