Captive Terminology

Some Useful Terms to Get You Started

Captive Insurance Company:

A closely held insurance company whose insurance business is primarily supplied by and controlled by owners, and in which the original insureds are the principal beneficiaries. The insureds have direct involvement and influence over the company's or group’s major operations, including underwriting, claims, management policy, and investments. Vermont's captive owners represent a wide range of industries including multi-national corporations, associations, banks, municipalities, transportation and airline companies, power producers, public housing authorities, higher education institutions, telecommunications suppliers, shipping companies, insurance companies and manufacturers, among others.

Single-Owner Captive:

Also referred to as "pure captive", insures only the risks of the owner or the owner's subsidiary operations.

Group Captive:

Is owned by multiple, non-related organizations and is designed to insure the risks of these different entities.

Association Captive:

Is owned by members of a common industry or trade association in order to share the risks of that industry among its members.

Risk Retention Group:

Is an entity created under the federal Liability Risk Retention Act, and licensed in any one state to write liability insurance; is regulated as a captive insurance company; and may operate nationwide, provided it properly registers with each state in which it proposes to solicit or write insurance.

Reciprocal:

Is an unincorporated association; reciprocal insurance is that which results from an interchange among subscribers of reciprocal agreements of indemnity, the interchange being effectuated through an attorney-in-fact common to all subscribers.

Sponsored Captive:

Is one that uses the capital provided by an insurer or reinsurer while providing fronted insurance coverage to discrete and usually unrelated entities. The sponsored captive can be either a licensed insurer, an authorized reinsurer, or a fronted Vermont captive insurer (except RRG).

Branch Captive:

Is a unit of an existing offshore (alien) captive, currently licensed in Vermont to write employee benefit business for its owners and affiliates onshore. The branch is regulated as a pure captive, is taxed only on the branch writings and is required to use an onshore trust for the protection of US policyholders and ceding insurers.