What is a captive insurance company?

A captive is an insurance company created and wholly owned by one or more non-insurance companies to insure the risks of its owner (or owners). Captives are essentially a form of self-insurance whereby the insurer is owned wholly by the insured. They are typically established to meet the risk-management needs of the owners or members. Captives are formed to cover a wide range of risks; practically every risk underwritten by a commercial insurer can be provided by a captive. The type of entity forming a captive varies from a major multinational corporation—the vast majority of Fortune 500 companies have captive subsidiaries—to a nonprofit organization. Once established, the captive operates like any commercial insurance company and is subject to state regulatory requirements including reporting, capital and reserve requirements.

Captive insurance companies have been in existence for over 100 years. However, over the past 30 years, there has been significant growth in the captive market — including in Montana, which is now considered a U.S. leader in captive insurance.

What is the history of captive insurance in Montana?

The 2001 Legislature passed a law allowing captive insurance companies to operate under the Montana Code Annotated (MCA) Title 33, Chapter 28. A captive insurance company is a specialized company established primarily to insure the risks of a parent company or members of an association. Captives serve the insurance needs of the parent organization or association without the uncertainties of commercial availability and cost. They provide an insurance alternative for businesses and organizations, which is particularly important during times of a difficult insurance market when companies are looking for options.

Captives do not interact with consumers in the same fashion as traditional multi-line companies so the CSI office has been able to create a streamlined regulatory environment for them.

The captive insurance industry provides significant economic benefit to Montana. An infrastructure of professional service providers (managers, accountants, lawyers, actuaries) has developed to support the industry. Captive insurers domiciled in Montana provide insurance to rural hospitals, nursing homes, doctors, commercial trucking companies, contractors, and others. Long-term benefits to Montana include the potential for new jobs, an expanded tax base and increased economic activity.

In the years following original enactment of Montana’s captive legislation in 2001, the Montana Legislature has passed several important law changes that favorably impacted captives. Examples include: in 2011 the legislature provided the authority to create incorporated cells within a protected cell captive insurance company, as well as the new special purpose captive licensing category; in 2013, the legislature enacted changes to Montana’s corporate laws that permitted business entities (including captives) to form as Series LLC companies; and in 2015 the legislature changed the law that provided public entities (political subdivisions) the ability to own a captive.

(content courtesy of the Montana Commissioner of Securities and Insurance)