Captive reinsurance
Captive reinsurance is an arrangement in which a captive insurer, an insurance company created and owned by a parent business or group to insure that group's own risks, participates as a reinsurer, often by assuming risk ceded from a licensed fronting insurer.
A captive is an insurer set up by a non-insurance parent, or a group of parents, primarily to cover the risks of its owners rather than to sell coverage to the public. In a common captive reinsurance structure, a licensed insurer issues the policy to satisfy regulatory or contractual requirements and then cedes some or all of that risk to the parent's captive through a reinsurance agreement.
This approach matters as a risk-financing tool. It lets an organization formally retain risk it understands well, gain more control over claims handling, and potentially access the broader reinsurance market, while still meeting requirements to use an admitted or licensed insurer. Captives are regulated, and their reserves, capital, and reinsurance dealings are reviewed by insurance regulators.
For example, a large manufacturer might have a fronting carrier write its general liability coverage and then reinsure most of that exposure into its own captive, keeping the underwriting result within the group.
Captive structures often work alongside commercial reinsurance and retrocession, which spread risk beyond the captive itself.
Related Terms
Definitions are educational and general, and specific contracts, endorsements, and state rules may modify them. For regulatory guidance, refer to the NAIC or the Insurance Information Institute.