A captive Insurance company is a legal entity formed primarily to ensure the risks of one corporate parent or a number of similar corporations(e.g., trade associations) there by contributing to a reduction in its parent’s (“total cost of risk”). Captives are licensed by many jurisdictions. The captive’s primary jurisdiction is known as its Domicile.
Example:
• A Company that operates in a high-risk industry may find it difficult to obtain insurance coverage for certain types of risks. By creating a captive insurance subsidiary, the company can provide coverage for these risks and reduce its overall insurance costs.