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Ch. 24: Captive Insurance Companies

• Introduction

Definition: Captive Insurance Company (“Captive”) – Slang for an insurance company used predominantly to underwrite the business risk of other subsidiaries of the parent company or owner. The term “captive” is not used in any insurance statutes or in the Internal Revenue Code, but is rather a practice term used to describe an insurance company fulfilling the described role.

• Insurance Company Economics

Synopsis: Discusses why insurance companies are created, and the basics of captive insurance companies.

• Captive Insurance Company Structure

Synopsis: Describes the typical parent-captive-subsidiary structure.

• Captives and Risk Management

Synopsis: Discusses captives as tools for managing various identifiable risks of the owner’s business, and to take advantage of pricing inefficiencies in commercially-available insurance.

• Asset Protection and Captives

Synopsis: Discusses the benefits of captives in the debtor-creditor context.

• Closely Held Insurance Companies

Synopsis: Describes the basics and advantages of Closely Held Insurance Company structures.

Definition: Closely Held Insurance Company (CHIC) – A privately-held insurance company that is typically owned either by the owner’s children or an irrevocable trust formed for the owner’s children, to provide additional tax and succession benefits in addition to those of the captive arrangement.