Captive Insurance Company

Company formed to insure the risks of its parent corporation. Reasons for forming a captive insurance company include:

1. Instances when insurance cannot be purchased from commercial insurance companies for a business risk. In many instances companies within an industry form a joint captive insurance company for that reason.
2. Premiums paid to a captive insurance company are deductible as a business expense for tax purposes according to the InternalRevenue Service. However, sums set aside in a self insurance program are not deductible as a business expense.
3. Insurance can be obtained through the international reinsurance market at a more favorable premium, with higher limits of cover age.
4. Investment returns can be obtained directly on its invested capital.