Captives 101: a Guide to the Different Types of Captives

Captives 101: a Guide to the Different Types of Captives

November 13, 2025

Captive insurance is an arrangement in which a company creates its own insurance company to cover its risks, rather than purchasing insurance from a third-party commercial insurer. In other words, a captive insurance company is one that is formed and owned by the parent company (or a group of companies) to insure its own risks and liabilities.

The main reason companies create captives is to gain more control over their insurance needs. By forming a captive, they can tailor the coverage to suit their specific risk profile, reduce insurance costs, and potentially increase their financial flexibility.

There are different types of captive entities that can be used depending on the goals and objectives of your company. Below is summary of some of the captive structures that can be utilized.

Single-Parent (Pure) Captive

A single parent captive is also known as a “pure” traditional captive. This is an insurance entity created by a single parent company to cover their potential liabilities. The structure of a single-parent captive gives the parent company complete control over the captive insurance allowing flexibility and maintaining cost efficiency.

Group Captive Insurance Company

A group captive is a self-insurance company formed by a group of businesses (often from the same industry or with similar risk profiles) to share risk and control their insurance costs.

Instead of buying insurance from a commercial carrier, the member companies pool their resources to form and capitalize their own insurance company. Using this structure is one of the most efficient ways for companies to give businesses greater control, financial rewards, and stability.

Association Captive Insurance Company

An association captive insurance company is a mutually owned insurance entity established and governed by a group of organizations or enterprises operating within a common industry or trade association. The primary objective of such a structure is to enable member organizations to collectively assume and manage risks that are insufficiently addressed or inefficiently priced within conventional insurance markets. Through the formation of their own captive, members obtain enhanced autonomy and oversight over critical aspects of their insurance programs, including underwriting standards, claims administration, and risk management strategies.

Rent-a-Captive Insurance Company

Rent-a-captive insurance, also referred to as a rental captive or protected cell captive, is a form of captive insurance that enables a business to “rent” a segregated cell within an established captive facility. This structure allows organizations to access the benefits of captive insurance—such as tailored coverage and greater control over risk financing—without bearing the full financial and capital requirements associated with forming and operating a wholly owned captive.

Protected Cell Captive Insurance Company

A protected cell captive insurance company is a type of captive insurer that allows multiple participants to share the benefits of a single insurance program while keeping their risks and assets separate. The company is divided into individual “cells,” each with its own assets and liabilities, independent of the other cells and the main company. This structure enables participants to take advantage of captive insurance, such as customized coverage and potential cost savings, while limiting their exposure to the risks of other participants.

Risk Retention Group Captive Insurance Company

A Risk Retention Group (RRG) is a U.S.-based liability insurer established under the Liability Risk Retention Act of 1986, owned by its policyholders, who must also be the insured. RRGs provide liability coverage to members in similar or related industries and cannot offer property or workers’ compensation insurance. Chartered in one state, they can operate across multiple states with registration. Members benefit from control over underwriting, claims, and risk management, potential cost savings, and access to reinsurance, while facing limitations in coverage scope, regulatory compliance requirements, and lack of state guaranty fund protection. RRGs are commonly used by industries with challenging liability exposures, offering a flexible and cost-effective means of collectively managing risk.

Special Purpose Captive

A Special Purpose Captive Insurer (SPCI) is a captive insurance company created for a specific, limited purpose or transaction. It is licensed and regulated by the commissioner and operates independently from the other activities of the parties involved. The main goal of an SPCI is to isolate the designated transaction, ensuring that it is treated separately from other business operations. This structure helps mitigate risk and liability associated with the transaction, while also ensuring that the SPCI is not controlled or owned by any of the parties involved. SPCIs are often used for specialized risk financing, such as securitization of insurance risks, catastrophe bonds, or reinsurance transactions. They must meet specific regulatory requirements to ensure financial solvency and maintain independence, acting as standalone vehicles for the transaction or risk they are designed to manage.

Summary

When properly established and utilized, captive insurance allows companies to tailor coverage, reduce costs, and gain greater control over their insurance programs. While captives offer benefits such as cost savings and customized coverage, they require significant capital, expertise, and regulatory compliance.