Glossary

Captive insurance company

A licensed insurer owned by the business or group it insures, formed to underwrite their own risks rather than buying all coverage from outside insurers.

Also called: captive, captive insurer, single-parent captive, group captive, pure captive

A captive is an insurance company that a business, or a group of businesses, owns to insure its own risks. A single-parent captive covers its owner and affiliates; a group captive pools similar companies, such as members of an industry association. Captives are licensed in a domicile such as Vermont, Delaware, Utah or Bermuda, take in premiums, hold reserves and pay claims, and buy reinsurance for the layers they don't want to keep. Because most states require a licensed insurer to issue a policy, a fronting carrier often issues the policy and cedes the risk to the captive.

The appeal is control and cost: the owner keeps underwriting profit and investment income that would otherwise go to a commercial insurer, can insure risks the market handles poorly, and gets a stake in claims and loss control. The risks are real capital, an actuarial feasibility study, annual regulatory filings, and volatility if losses spike.

Tax treatment is the third rail. Premiums are deductible only if the arrangement is real insurance, with risk shifting and distribution. Under IRC section 831(b), a small captive can elect to be taxed only on investment income if its premiums do not exceed $2.9 million for taxable years beginning in 2026. Final regulations effective January 2025 require disclosure of certain micro-captive transactions. The guide on what is a captive insurance company and how does it work? explains who should consider one, and Micro-captives (831(b)) and the IRS: rules, red flags and reporting covers the scrutiny.

Last reviewed October 10, 2026

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Related terms

Risk retention group A member-owned liability insurer formed under the federal Liability Risk Retention Act, licensed in one state but allowed to cover members in every state. Fronting An arrangement where a licensed insurer issues the policy but passes most or all of the risk to a captive or reinsurer, for a fee. Retention The share of a loss a business pays itself, through a deductible, self-insured retention or captive, before insurance responds. Total cost of risk (TCOR) The full annual cost of carrying risk: insurance premiums, losses you retain, and loss-control and administrative spending, often shown as a share of revenue. Self-insured retention (SIR) The amount of a loss the insured must pay itself, often including defense costs, before the insurer's liability policy begins to pay.

Related guides

The Bermuda insurance and reinsurance market Why Bermuda is a global hub for property catastrophe reinsurance, captives and cat bonds, its regulation and 15% tax, and how it affects U.S. business buyers. Captive domiciles compared: Vermont, Utah, Delaware and offshore How to choose a captive domicile: what the regulator controls, 2025-2026 size figures for Vermont, Utah, Delaware, Tennessee and offshore, and the tax limits. How captives are taxed: premiums, 831(b), excise tax and distributions How captives are taxed: premium deductions, the 2026 section 831(b) limit, the 4% excise tax, premium taxes and the micro-captive court cases. Cell captives and protected cell companies: how renting a cell works A cell captive lets a business insure its own risks in a segregated account of a sponsor's licensed insurer. How cells are protected, taxed, priced and exited. Enterprise risk management (ERM) explained What enterprise risk management is, how COSO's 2017 framework and ISO 31000 define it, how risk appetite works, and how an ERM program changes insurance buying. Fronting arrangements and fronting carriers: how they work A fronting carrier issues the policy on its paper while a captive or reinsurers carry the risk. Fees, collateral, credit risk and what the policyholder sees.

Related insurers

AIG Global commercial insurer for middle-market, large and multinational companies, led in the U.S. by National Union and Lexington, the E&S arm. Broker-sold. Allianz Commercial Allianz's commercial arm (formerly AGCS, absorbing Fireman's Fund); large corporate property, casualty, marine, aviation and specialty cover through brokers. Ascot Group Bermuda specialty insurer majority-owned by CPP Investments; its U.S. arm writes E&S and excess casualty, professional lines, surety, marine and comp. AXA XL AXA's commercial and specialty division, built on XL Group (bought 2018); writes liability, excess, property and specialty lines for mid-size and large firms. FM Policyholder-owned property insurer (formerly FM Global) for large and midsize companies, known for engineering-led loss prevention and member credits. Old Republic Chicago-based specialty group (NYSE: ORI) behind Great West trucking, Bitco construction, PMA comp and large-deductible programs; No. 4 in U.S. commercial auto.