What is a captive insurance company?
A ‘captive’ insurance company is an insurance company that is established to predominately insure or reinsure the risks of its parent, or organisations affiliated with its parent(s). Captives have existed in some form since the 1870s, when the first protection and indemnity clubs were created.
How many captive insurance companies were there in 1981?
By 1981, the number of captive insurance companies had reached 1,400, and it grew to 1,600 by 1983. Within another three years, the number of captives exceeded 2,200, and the annual premiums rose above $7 billion. In 1986, a pivotal year for the captive insurance industry, the definition of controlled foreign corporations changed.
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.".