Types of Captive Insurance Companies

The different types of structures are: pure captives, association captives, agency or caledonian captives and segregated portfolio companies ("SPC").

Pure Captives - shareholder risks only

The traditional form of captive is known as the pure captive. Usually located in an offshore jurisdiction, the pure captive insures the risks of the parent company. Typically these risks take the form of property and casualty risks.

Pure Captives - third party risks 

Diversifying the business base to include the insurance of third party risks of customers and clients may change the captive from a cost center into a profit center.

Association Captive / Group Captive / Agency Captive 

These types of captive are typically owned by a number of different entities (usually insured), either with a common bond (Trade Association Captive), insuring the same type of cover to meet a common insurance need (Group Captive). A popular alternative is a captive owned by risk intermediary to participate in the risks of its customers (Agency Captives) and earn both insurance and investment income from this participation.

Rent-a-captive 

A rent-a-captive is an arrangement in which a sponsor provides the capital for a captive company, which is then accessed by clients to write captive insurance business. The clients pay a charge to the sponsor for the "rent" of the capital. Side arrangements, such as guarantees or letters of credit are used to ensure that the sponsor's capital is not placed at risk.

To some extent this type of arrangement has been replaced by the SPC. However, both rent-a-captives and SPCs are viable entities for agency captives and both have distinct advantages.

Segregated Portfolio Companies (SPC) 

Segregated Portfolio Companies are an evolution of the rent-a-captive that allow for the creation of portfolios (cells) undertaking insurance business. The Companies Law was amended in 1989 to create statutory protection of the assets of each cell from creditors of other cells regardless of whether the cells are related or not. Typically each cell is designated by a separate share class and this protection means that shareholders of one class are ring-fenced from losses affecting shareholders of another class.

Details on the establishment and operation of an SPC can be obtained from our SPC Memorandum.