Captive insurance refers to a subsidiary corporation established to provide insurance to the parent company and its affiliates. A captive insurance company represents an option for many organizations, from Fortune 500 companies to nonprofits, that want to take financial control and manage risks by underwriting their own insurance rather than paying premiums to third party insurers.

Why form a captive?

Establishing a captive insurance company often provides significant benefits to organizations and risk management professionals. The advantages of going captive include:

  • Coverage tailored to meet your needs
  • Greater control over claims
  • Reduced operating costs
  • Control of cash flow
  • Funding and underwriting flexibility
  • Access to the reinsurance market
  • Incentive for loss control
  • Capture underwriting profit
  • Pricing stability
  • Potential tax benefits
  • Investment income
  • Potential additional profit center
  • Tremendous flexibility in managing risk
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How does captive insurance work?

Captive insurance works similarly to conventional insurance, except for a few key distinctions.


A business owner sets up a captive insurance company as a wholly owned subsidiary and identifies the risks that it wants the captive to underwrite.


The captive is capitalized and domiciled in a jurisdiction with captive enabling legislation which allows the captive to operate as a licensed insurer.


The captive evaluates the risks, writes policies and sets premium levels.


The business owner pays premiums to the captive insurance company.


After a given year, if there is undistributed surplus in the captive with no claims for losses, or less than expected claims for losses, these funds can be used as a secured loan back to the business, as a dividend, or used to support additional lines of coverage to be placed in the captive.

Interested in forming a captive?

Captive types

Pure Captive

Also referred to as a "single-parent captive", a pure captive insures only the risks of the parent and affiliated companies or controlled unaffiliated business.

Risk Retention Group (RRG)

An entity created under the federal Liability Risk Retention Act, and licensed in any one state to write liability insurance; is regulated as a captive insurance company; and, may operate nationwide, provided it properly registers with each state in which it proposes to solicit or write insurance.

Special Purpose Financial Insurance Company (SPFI)

A special purpose financial insurance company is used to facilitate risk securitization via a transaction or a group of related transactions, which may include capital market offerings, that are effected through agreements where all or part of the result of such transactions is used to fund the special purpose financial insurance company’s obligations under a reinsurance contract with a ceding insurer. Funding may be provided by the issuance of securities, letters of credit, or other assets. SPFIs are almost exclusively formed by commercial insurance companies.

Sponsored Captive

A sponsored captive insurance company has its minimum capital and surplus provided by one or more sponsors. Sponsors must be qualified by the Department of Financial Regulation. The business of a sponsored captive may only insure the risks of participants through separate participant contracts, and the liability to each participant must be funded through one or more cells. The assets of cells are available only to satisfy the liabilities of that cell.

Industrial Insured Captive

A captive insurance company owned by multiple, non-related organizations (industrial insureds), to insure the risks of these organizations and their affiliated companies.

Association Captive

A captive insurance company that insures risks of the member organizations of an association and of the association itself.

Branch Captive

A unit of an existing offshore (alien) captive, licensed in Vermont to insure its owners and affiliates onshore. The branch is regulated as a pure captive, is taxed only on the branch writings and may be required to use an onshore trust for the protection of US policyholders and ceding insurers.

Agency Captive

An agency captive is a reinsurance company controlled by an insurance agency or brokerage. Through a reinsurance agreement with a traditional insurer, the agency captive receives a share of the premiums written, and is obligated to pay its share of claims.

Affiliated Reinsurance Company (ARC)

An ARC may be formed to reinsure related commercial insurance companies. ARCs are regulated in a manner much like their commercial parent company, but with greater investment flexibility.


A captive insurance company is a licensed insurance company that is owned and controlled by its insureds and primarily insures the risks of its owners. A captive insurance company is governed by a Board of Directors whose membership consists of a majority of owner/insureds and who have oversight and direct involvement with the captive’s operations, including underwriting, claims management, and investment policies. There are currently over 6,600 active captives worldwide that service their parents’ risk management and risk financing needs. In Vermont, that figure is nearly 600. For more information on captive insurance companies, contact us today.
In principle, virtually any risk can be covered through a captive structure. While the majority of captives are still insuring traditional property and casualty business, there are a growing number writing new and emerging risks as well. Captives offer unrivaled flexibility in financing risks, which is one of the reasons that more captive owners now use them to address new, complex and emerging risks such as cyber, terrorism, employee benefits and medical stop-loss. More companies than ever see captive utilization as being at the core of innovative risk management strategies. Contact us today to learn more.
Redomesticating your captive to Vermont is a simple process that we are happy to help you navigate. First, the Department of Financial Regulation likes to have a confidential conversation, either in person or via conference call, to discuss your captive’s business plan, ownership structure, and current operating results. We also want to understand the reason(s) for redomestication and want to share information about Vermont and how the captive will be regulated after licensing. If all parties agree that Vermont is a good fit, the next step is to fill out an application for redomestication. You can obtain the application by contacting us today.

While moving your captive to Vermont is not complicated, we recommend engaging the services of local counsel for the legal coordination of the redomestication from one jurisdiction to another, though this is not required. In many cases your captive management firm can remain the same as most of the leading captive managers have offices here in Vermont. If that is not the case, we would be happy to provide you with a list of approved captive managers.

The timeframe for redomestication to Vermont is usually the same as for any new captive formation—about a month. Redomestication to Vermont is very common and we are happy to help you through the process. Contact us today to get started.
Commercial insurance companies sell insurance to the general public and are licensed in all states in which they do business. By contrast, captive insurance companies insure only the risks of owners, who are sophisticated insurance buyers with the ability to manage and retain their own risk. Consequently, we do not have the same policyholder protection concerns and the degree of regulatory oversight required for captives is less onerous than that which is required for commercial insurers. The captive is licensed in only one state and operates under the captive insurance laws of that domicile.

In Vermont the focus is on the balance of firm and fair regulation, proportional to the risk assumed by the captive. Since 1981, successive governors and legislatures have worked hard to keep current with the changing needs of this dynamic industry. Vermont’s experienced licensing team is knowledgeable and ready to handle all inquiries, making formations, examinations and business plan changes efficient, cost-effective and value-added. Simply put, this means that there are no surprises or slowdowns as companies are dealing with the most experienced and time-tested captive jurisdiction. Contact a member of our licensing team for more information.
Over the last three and a half decades, Vermont captive insurance has become known as the ‘gold standard,' a moniker given to us by the industry press, and one that we are proud to wear. The gold standard is more than our reputation, it’s our promise. It’s our dedication to helping your business as it navigates the complex captive insurance environment. The result—captives that are sensible, secure, and supported.

No matter the size or type of company or group, Vermont remains the best place to form your captive insurance company. We have an infrastructure made up of the world’s leading captive management professionals, attorneys, bankers, accountants, actuaries, investment managers and the largest captive trade association in the world, the Vermont Captive Insurance Association.

When you choose the gold standard, you will also be choosing the largest and most experienced team of captive insurance regulators in the world. Under the leadership of the Department of Financial Regulation and Department of Economic Development, we continue to help guide the development of new regulations for the industry, and we remain available and accessible to Washington, D.C. and industry organizations in our ongoing efforts to keep pace with rapidly evolving insurance needs.

So please, make Vermont your first call. You’ll receive honest and knowledgeable advice. We have your interests foremost in mind, and we place customer service as our number one objective in working with you. Contact us to learn how Vermont sets the gold standard!
As businesses and nonprofit organizations of all sizes seek to gain greater control over the costs and opportunities of risk management, they are increasingly looking to captive insurance as an alternative or enhancement to purchasing insurance in the traditional marketplace. For sophisticated companies, managing and financing risks are important aspects of overall business strategy.

Having a captive insurance company gives organizations of all sizes better control over your risk management and can reduce the overall cost of risk. However, when deciding whether to form a captive, companies need to consider whether the organization’s insurance premiums are sufficiently large enough to justify the investments of time and resources needed to form and operate a successful captive insurance company.

While captive insurance companies can be valuable strategic tools, they are not always the best approach for every organization. An organization considering captive insurance should follow a methodical approach to determine whether a captive is the right solution. In addition, it is important for any organization considering the formation of a captive to hire professionals experienced in actuarial, accounting, tax and legal issues. Well-planned captives are formed for long-term risk management solutions; the most successful captives are those where the parent company views the captive as a long-term strategy. Contact us to learn if captive insurance is right for your business.
By statute, a Vermont-domiciled captive insurance company is examined whenever the Commissioner determines it to be prudent, but not less frequently than once every five years. Vermont’s in-house examination team at the Department of Financial Regulation is widely recognized as the most experienced and knowledgeable staff in the industry, meaning your exam is conducted in a manner that is effective, cost-efficient and value-added. For more information on examinations, contact our examination team.
Vermont’s flexible and practical regulatory approach depends on open communication between the regulators, captive owners and service providers. Bringing representatives of the captive to Vermont for an annual board meeting enhances this communication and promotes information sharing between all parties, thus adding value to the captive.

We do understand that the annual meeting requirement can be a hardship for captives with large boards of directors, or when last minute health or weather problems make travel difficult. We are happy to make allowances under certain circumstances to best accommodate your needs. Contact us for more information.
Pure and Branch Captives: USD $250,000
Sponsored: USD $100,000
Association, Industrial Insured and Agency: USD $500,000
Risk Retention Group: USD $1,000,000
SPFIs and Affiliated Reinsurance Companies: USD $5,000,000

The insurance commissioner may prescribe additional surplus requirements based on the type, volume and nature of the insurance business. Capital and surplus may be in the form of cash, marketable securities, a trust approved by the commissioner and of which the commissioner is the sole beneficiary, or an irrevocable letter of credit that uses the qualified format and is issued by a qualified bank. For more information, contact a member of our licensing team.
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