How Does a Captive Insurance Company Work?
At its most basic level a “pure” works like this: A corporation with one or more subsidiaries sets up a captive insurance company as a wholly owned subsidiary. The captive is capitalized and in a jurisdiction with captive-enabling which allows the captive to operate as a licensed insurer. The parent identifies the risks of its subsidiaries that it wants the captive to . The captive evaluates the risks, writes policies, sets premium levels and accepts premium payments. The subsidiaries then pay the captive tax-deductible premium payments and the captive, like any insurer, invests the premium payments for future claim payouts.