What is a Pure Captive?   A pure captive is a licensed insurance carrier that is controlled by a parent corporation (the “parent”) and whose entire business consists of insuring or re-insuring the property/casualty or workers’ compensation risk exposures of the parent (or affiliates of the parent).  Although the captive insures only the parent’s (or affiliates’) risks, the captive generally functions like a regular commercial insurer: it issues policies to its policyholder (the parent/ affiliate), collects premiums, disburses claim payments, prepares balance sheets and income statements, and complies with the regulatory requirements of the jurisdiction in which the captive is domiciles.  Generally speaking, captives are not regulated nearly as stringently as commercial insurance carriers because captives are not engaged in the business of insuring the general public.   While Risk Retention Group Insurance Company’s are regulated for the most part as traditional Insurance Company’s.


Why do employers establish and maintain Pure Captives?  Parent companies typically establish captives in order to obtain convenient and practical vehicles for retaining property and casualty or workers’ compensation risks that would be unreasonably expensive for the parent to insure in commercial insurance markets.    In “hard” markets where coverage is unavailable or the premium rates for available coverage are high, the Business Owners tend to insure or reinsure more risk in their captives and less risk in commercial insurance markets.


For example, a captive may be established for the purpose of reinsuring the parent’s workers’ compensation liabilities, general liability, auto liability, property or even employee benefits.  Under the reinsurance arrangement, the so-called “fronting insurer” (if Workers’ Compensation) would issue a policy to the parent for the parent’s workers’ compensation coverage.  By pre-arrangement, the fronting insurer would then reinsure all of the parent’s risk to the parent’s captive.  The net result: the fronting insurer handles the administrative functions, while ceding risk of volatile claim losses back to the parent’s captive.   The parent finds this reinsurance for Workers’ Compensation arrangement attractive because the parent can afford to absorb claim volatility and choose not to pay a commercial carrier for bearing this risk.





F. Darrell Lindsey

U.S. State Licensed/Agent/Broker

U.S. State Approved Captive/RRG/

Self Insured Manager