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Captive Insurance
Consider greater involvement in financing your business risks through an insurance company you own or share.
- In short
- A captive changes who finances risk; it does not remove the risk or guarantee savings.
- Who or what is protected
- Participating organisations through a licensed insurer they own or control.
- Where it stops
- Owners take on capital, governance, and possible additional funding.
An ownership structure, not a product
This guide helps you understand a captive as an ownership and financing structure, including the obligations it creates.
Policy background and wording
A captive is a licensed insurance company owned or controlled by the business or businesses it insures. It can give participating organizations more involvement in underwriting, claims, and risk management, while also creating capital, governance and operational responsibilities.
The Southern Agency partners with captive management firms to help businesses explore this approach. Feasibility, regulatory advice, and independent tax and legal guidance are essential; savings, underwriting profits, and tax benefits are not guaranteed.
Ownership changes the responsibility
A captive changes how risk is financed. It does not remove the risk or guarantee coverage for every loss.
Who typically looks at it
- Businesses with significant premium volume and reliable loss data
- Organizations with unusual risks or difficult traditional placements
- Companies willing and able to retain risk over the long term
How it works
How a captive program can be layered
Traditional insurance or reinsurance above; a retained layer financed through the captive; owners providing capital and governance at the base.
Read the diagram as text
From top to bottom:
- Traditional insurance or reinsurance: Responds on its own terms
- Retained layer financed through the captive: Selected risks under the approved program
- Owners: capital and governance: Licensing, actuarial, reporting duties
- Possible additional funding after adverse losses: Retained layer financed through the captive to Owners: capital and governance.
Terms on this page
- Captive
- A licensed insurer owned or controlled by the businesses it insures.
- Domicile
- The jurisdiction whose rules govern legal separation and obligations.
- Retained layer
- A defined layer of covered losses kept through the captive.
Look deeper
Will it save money?
Not necessarily. Control and underwriting results must be weighed against losses, capital, and long-term obligations.
What to check: Ask for a feasibility study with independent advice.
Does it replace every policy?
No. Programs retain selected risks and use traditional insurers or reinsurance for others.
What to check: Map which lines would stay traditional.
The captive layer and the traditional layers beside it
A captive program commonly combines both. Each responds on its own terms.
| Layer financed through the captive | Traditional insurance or reinsurance in the program | |
|---|---|---|
| Role | Retains selected risks | Covers other layers and obligations |
| Who decides what is paid | The captive’s policy and approved program | Its own policy and reinsurance terms |
| After adverse losses | Owners may face additional funding | Responds only on its own terms |
Scroll sideways to compare all columns.
What it may cover, and where it stops
Exact terms depend on the carrier, policy form, endorsements, and applicable law. Review the wording with your agent.
May cover
- Selected risks supported by the captive’s approved program
- Retained layers coordinated with traditional insurance and reinsurance
- Tailored terms where legally permitted and supported by underwriting
Commonly excluded or limited
- Capital commitments and potential additional funding after adverse losses
- Licensing, governance, actuarial, and reporting obligations
- Coverage limited by the actual policies and program structure
- No automatic tax advantage, profit or cost reduction
Working through an example
Hypothetical and for illustration. Whether a real loss is covered depends on the facts and the policy.
- What happens
A retained layer responds
A business retains a defined layer of covered losses through a captive and buys protection above it.
- Which part is relevant
Losses in the retained layer are financed through the captive; reinsurance responds above on its own terms.
- What could change the outcome
- Policy and reinsurance terms decide who pays each layer.
- Adverse losses can require additional funding.
Other situations
Losses exceed expectations
A hypothetical group captive experiences several large covered claims. Members may face funding obligations under their agreements; reinsurance responds only on its own terms.
Before you talk to an agent
What underwriters usually weigh
- Premium volume, reliable claims history, and actuarial feasibility
- Capital, collateral, retained limits, and reinsurance
- Domicile regulation and governance requirements
- Management, claims, audit, and reporting costs
- Exit provisions and long-term funding commitments
Other questions owners ask
What structures are available?
Structures include single-parent, group, and association captives, as well as rent-a-captive and protected-cell arrangements. Legal separation and obligations depend on the domicile and agreements.
Will a captive save money?
Not necessarily. Potential control and underwriting results must be weighed against losses, capital, operating costs, and long-term obligations.
Does a captive replace every policy?
No. The program may retain selected risks while using traditional insurers or reinsurance for other layers and obligations.
Why The Southern Agency
Independent & Unbiased
We will work hard for you to make sure that you get great coverage by comparing multiple carriers.
Purpose-Built Solutions
Every business has different needs—we help you build your policy to match your industry and risk exposure.
Competitive Rates
We represent 40+ carriers—providing you with many coverage options to fit your budget.
Dedicated Support
Our team is here to support you with service after the sale—quick response, excellent claims handling, and friendly assistance.
Talk through captive insurance with an agent
We compare carriers, explain the wording, and help you choose limits that fit how your business actually runs.