What is a captive reinsurance contract?
The captive provides the owner or its affiliates with insurance coverage for risks that the owner wishes to retain, and the insured entities pay premium to the captive. Any profits made by a captive are retained within the parent company's group rather than being 'lost' to the insurance market. What is a reinsurance contract called?
What is a captive insurance company?
What is 'Captive Insurance Company'. A captive insurance company may form if the parent company cannot find an outside firm to insure them against particular business risks; if the premiums paid to the captive insurer creates tax savings; or if the insurance provided is more affordable or offers better coverage for the parent company's risks.
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.".