What is a captive insurance company?
Captive Insurance companies represent a special case of risk retention. Instead of paying a premium to an insurance company, the premium is paid to the captive insurance company. Depending on the type of the company, level of claims, the captive could retain any excess of the premium received over claims paid.
What is a reinsurance captive?
A reinsurance captive reinsures the risks insured by one or more fronting companies. The fronting company is a licensed, admitted insurer that issues insurance policies to the captive's parent company without the intention of assuming all (or any) of the risk. The risk of loss is then transferred to the captive through the reinsurance agreement.
What is the difference between a direct and a captive insurer?
A direct writing insurer issues insurance policies to its insureds. A captive insurer operating as a direct insurer insures the risks of the group and purchases reinsurance on the commercial reinsurance market. This reinsurance is not designed to deal with high-frequency or low-severity loss occurrences.