section_path: Insurance companies/Captive insurance companies
section_name: Captive insurance companies
paragraph_text: Captive insurance companies
  
  Captive insurance companies can be defined as limited-purpose insurance companies established with the specific objective of financing risks emanating from their parent group or groups. This definition can sometimes be extended to include some of the risks of the parent company's customers. In short, it is an in-house self-insurance vehicle. Captives may take the form of a "pure" entity, which is a 100% subsidiary of the self-insured parent company; of a "mutual" captive, which insures the collective risks of members of an industry; and of an "association" captive, which self-insures individual risks of the members of a professional, commercial or industrial association. Captives represent commercial, economic and tax advantages to their sponsors because of the reductions in costs they help create and for the ease of insurance risk management and the flexibility for cash flows they generate. Additionally, they may provide coverage of risks which is neither available nor offered in the traditional insurance market at reasonable prices.
  
  The types of risk that a captive can underwrite for their parents include property damage, public and product liability, professional indemnity, employee benefits, employers' liability, motor and medical aid expenses. The captive's exposure to such risks may be limited by the use of reinsurance.
  
  Captives are becoming an increasingly important component of the risk management and risk financing strategy of their parent. This can be understood against the following background: