What is the purpose of an insurance captive?

An insurance captive is an insurance company that is essentially owned by its insureds. It is typically organized as a corporation and formed when a business owner or parent company agrees to underwrite and take on the insurance risk for its affiliates. The purpose of an insurance captive is to provide the ability for a company to self-insure, meaning they do not need to purchase an insurance policy from an outside insurer. The assets of the captive are owned by the parent company, and the captive pays claims using the funds from these assets. In Maine, insurance captives are regulated by the Maine Bureau of Insurance. They must submit a detailed business plan that includes financial projections and proof of appropriate capitalization. Captive insurance companies must also meet solvency requirements and have an irrevocable letter of credit in place in case of financial insolvency. Captives are regulated to ensure they have sufficient capital to pay claims and are compliant with Maine state law. Due to their unique structure, insurance captives can provide their owners with a variety of benefits, such as a potential for cost reduction due to the lower cost of underwriting their own policies, and access to the insurance market for risks that are not typically covered. Captives also typically provide better control over underwriting and claims management, and they can offer tax benefits and improved risk management.

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What is the purpose of an insurance captive?

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