What defines a captive insurer?

A captive insurer is specifically defined as an insurance company that is created and owned by a non-insurance parent company to insure the risks of its parent or affiliated companies. This structure allows the parent company to have more control over its insurance and risk management needs, potentially reducing costs and ensuring that coverage aligns closely with its specific risk profile.

The concept behind a captive insurer is to provide a tailored insurance solution that can address unique risks that may not be adequately covered by traditional insurance markets. By having direct control over the insurance process, the parent company can often benefit from lower premiums, enhanced cash flow, and greater financial flexibility. This ownership structure distinguishes captive insurers from other types of insurers, such as those that are part of a Lloyd's syndicate or mutual and proprietary insurers, which serve broader markets or specific member groups rather than being specifically focused on the interests of a single parent company.