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Glossary of Captive Insurance Terms

Captive insurance involves a specialized form of insurance arrangement where a company forms its insurance subsidiary to cover its risks. Understanding the terminology associated with captive insurance is crucial for effectively navigating this complex field. Here's a glossary of key terms:

1. Captive Insurance:

A subsidiary company established by a parent organization to underwrite the risks of the parent and affiliated entities.

2. Parent Company:

The company that establishes and owns the captive insurance subsidiary.

3. Reinsurance:

The practice of insurers transferring portions of their risk portfolios to other parties to reduce their exposure to losses.

4. Fronting Company:

An insurer that issues insurance policies on behalf of a captive insurance company, while the captive assumes the risk and retains the premiums.

5. Domicile:

The jurisdiction in which a captive insurance company is licensed and regulated.

6. Risk Retention Group (RRG):

A type of captive insurance company formed under the provisions of the Liability Risk Retention Act of 1986 to provide liability insurance to its members.

7. Pure Captive:

A captive insurance company that only insures the risks of its parent and affiliated entities.

8. Group Captive:

A captive insurance company that insures the risks of multiple unrelated entities within a specific industry or affinity group.

9. Single-Parent Captive:

A captive insurance company that is wholly owned and controlled by a single parent company.

10. Cell Captive (Protected Cell Company):

A captive insurance company structure that segregates assets and liabilities into individual "cells" to allow multiple parties to participate in the captive while maintaining separate risk profiles.

11. Association Captive:

A captive insurance company formed by a group of similar businesses or organizations to collectively insure their risks.

12. Risk Management:

The process of identifying, assessing, and managing risks to minimize the impact of uncertainty on an organization's objectives.

13. Underwriting:

The process of evaluating and accepting risks for insurance coverage, including determining premiums and policy terms.

14. Premium:

The amount paid by an insured party to an insurer for insurance coverage.

15. Loss Ratio:

The ratio of incurred losses and loss adjustment expenses to earned premiums, used to assess the profitability and performance of an insurance company.

16. Claims Handling:

The process of receiving, investigating, and settling insurance claims made by policyholders.

17. Solvency:

The ability of an insurance company to meet its financial obligations, including claims payments, regulatory requirements, and other liabilities.

18. Risk Pooling:

The practice of spreading risk across multiple policyholders or entities to reduce the impact of individual losses.

19. Fronted Program:


An insurance program in which a fronting company issues policies on behalf of a captive insurance company, typically for regulatory compliance or access to markets.

20. Regulatory Compliance:

Adherence to laws, regulations, and regulatory requirements governing the establishment and operation of captive insurance companies in a particular jurisdiction.

Understanding these terms is essential for effectively managing captive insurance arrangements and navigating the complexities of the captive insurance industry.

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