Which statement about captive insurance organizations is accurate?

Which statement about captive insurance organizations is accurate?

• A. They are owned and controlled by policyholders
• B. They are always publicly traded
• C. They have no tax implications
• D. They are government-owned

Answer: (A)

Captive insurance organizations are owned and controlled by policyholders. This setup means a parent company or group creates the captive to insure its own risks, and those policyholders have direct influence over how the captive is run—everything from underwriting and pricing to claims handling and risk management. By owning the captive, the policyholders can tailor coverage to their specific needs and, in many cases, retain underwriting profits within the corporate group, promoting closer alignment between risk management and cost of risk. Captives are not typically publicly traded; they are usually privately owned by the parent or a related group. They are not government-owned. And there are tax implications to consider—their tax treatment depends on jurisdiction, regulatory rules, and substance requirements, so it’s not accurate to say there are no tax implications.

Captive insurance organizations are owned and controlled by policyholders. This setup means a parent company or group creates the captive to insure its own risks, and those policyholders have direct influence over how the captive is run—everything from underwriting and pricing to claims handling and risk management. By owning the captive, the policyholders can tailor coverage to their specific needs and, in many cases, retain underwriting profits within the corporate group, promoting closer alignment between risk management and cost of risk.

Captives are not typically publicly traded; they are usually privately owned by the parent or a related group. They are not government-owned. And there are tax implications to consider—their tax treatment depends on jurisdiction, regulatory rules, and substance requirements, so it’s not accurate to say there are no tax implications.