What is a captive insurance company?
Broadly, a captive insurance company is an entity created and controlled by a parent for the purpose of providing insurance for that parent.
Does a captive insurance company get a tax break?
If the parent company realizes a tax break from the creation of a captive insurance company will depend on the classification of insurance, the company transacts. In the United States, the Internal Revenue Service (IRS) requires risk distribution and risk shifting to be present for a transaction to fall into the category of "insurance.".
What is a reinsurance captive?
For reinsurance captives, Swiss Re can act as a fronting insurance company, issuing the policy and then ceding the risk into the captive. What benefits do captives offer? A captive bundles the risks of diverse business units and “uses internal risk diversification effects as a way to bring down the total cost of risk”, Keist says.