Definition: A wholly owned insurance company formed and controlled by a single parent company to insure its own risks and those of its subsidiaries or affiliates.
Key Features:
• Owned by one organization.
• Covers only the risks of the parent and/or its subsidiaries
• Potential to use structure for controlled unaffiliated business to get adequate risk distribution if parent doesn’t have adequate risk distribution in the form of operating subsidiaries.
• Also, potential to use for producer-controlled 3rd party risk (ie warranties)
• Most commonly used by corporations with significant insurance spend or a program they want to fully capture, and risk exposure want to monitor and capture.
• Capitalization of $250,000 in domestic domicile.
• Managed by captive manager approved in domicile selected under direct guidance of captive owner.
Advantages:
• Full control over insurance and risk management strategy.
• Ability to customize coverage and claims management.
• Potential for investment income earnings on underwriting profit
• Accumulated underwriting profit and investment gains attribute solely to owner.
• Cost savings through underwriting profit and improved risk management.
• Easy to modify Business Plan, issues dividends and ultimately wind-down
Disadvantages:
• Capital requirement to establish and operate usually higher than Cell or Group.
• All risk and reward (or loss) is borne by the owner.
Definition: A captive insurance company jointly owned by multiple, typically unrelated, companies to pool and insure their collective risks.
Key Features:
• Typically formed by companies with similar risk profiles (e.g., same industry).
• Members share in premiums, losses, and profits.
• Often managed by a third-party administrator who often also function as captive manager.
Advantages:
• Shared capital requirements, making it more accessible for smaller firms.
• Diversification of risk across multiple members.
• Group purchasing power can lead to lower reinsurance costs.
• Incentive for collective risk management and safety programs.
Disadvantages:
• Controlled by whoever is sponsoring the program, not the insured company’s owner
• Often member company owns phantom shares vs true ownership of entity
• Limited control over operations and governance for individual members.
• Risk of cross-subsidization (members indirectly covering each other’s losses).
• Requires strong governance to manage member relations and underwriting discipline.
• Often difficult to exit as capital can be retained for years to cover potential exposure
• Overall embedded expense load between program management and captive management can be much higher.
Definition: A captive structure with a core (sponsor) and multiple independent cells, each owned by separate entities. Each cell is can be separately incorporated and thus legally protected from the liabilities of other cells.
Key Features:
• Each cell operates independently, but within the regulatory umbrella of the core.
• Typically used by organizations that don’t want to establish a full captive as has lower initial capital requirements
• The sponsor provides infrastructure, regulatory license, and governance.
• Often captive manager will set up Cell structure and be sponsor of the Core to allow clients to come on board as Cells. Thus manager manages both structure and individual Cells.
Advantages:
• Lower setup and operating costs compared to single-parent captives.
• Ability to do much all the same things as a single-parent captive
• Faster and simpler to launch due to pre-established infrastructure.
• Each cell’s assets and liabilities are ring-fenced from others.
• Structure allows for lower frictional costs as third-party expenses shared across all Cells
• Ideal for smaller to mid-sized businesses programs.
Disadvantages:
• Somewhat less flexibility and autonomy than single-parent captives, although parent still own the entity.
• Limited control over the core sponsor’s operations.
• You are in a structure with others (can be a positive as well if properly managed).
• Single-Parent Captives are considered the most autonomous and customizable captive structure.
• They support long-term risk retention strategies and often lead to significant cost savings through underwriting profits and reduced their reliance on commercial insurers.
• These captives can be structured globally, offering flexibility in tax and regulatory planning for large multinational corporations.
• Eliminates the risk of shared losses as seen in group captives.
• Greater operational control compared to cell captives, which are governed under a sponsor framework.
• Ideal for large corporations seeking to centralize risk management and develop tailored insurance solutions.
• Cell Captives are an attractive solution for companies seeking lower entry barriers into captive insurance.
• They allow businesses to test captive strategies before committing to a full standalone captive.
• Particularly useful for insuring specific lines of risk such as warranty programs, employee benefits, or niche liability exposures.
• Each cell is legally segregated, so the performance or failure of one cell does not affect another.
• Unlike group captives, cell owners are not exposed to the underwriting results of other members.
• Faster setup and lower operational burden make it ideal for mid-sized firms and startups.
Single-parent captives offer companies the highest level of control, customization, and financial benefit in captive insurance by allowing a business to insure its own risks and retain 100% of the underwriting profits and investment income. Unlike group captives, which involve shared ownership and expose members to the risks and losses of others, single-parent captives are wholly owned and operated by one organization, providing unmatched autonomy in coverage, claims handling, and long-term strategy. While group captives can seem appealing to smaller firms due to shared costs, they often come with limited governance, hidden expenses, and difficult exit terms.
For companies not ready to establish a full captive, cell captives serve as a strategic stepping stone, offering legal segregation of assets, lower capital requirements, and many of the same benefits as a single-parent structure without the complexity of group participation. Ultimately, single-parent and cell captives provide more control, transparency, and potential for savings, making them the preferred structures for businesses serious about taking charge of their insurance and risk management.