Types of Captive Structures

Not all captives are alike. The term encompasses a range of legal structures that differ in ownership, risk-sharing, regulatory treatment, and operational complexity. Selecting the right structure is one of the most consequential early decisions in captive formation.

Single-Parent (Pure) Captive

A single-parent captive, also called a pure captive, is owned by one parent entity and insures only the risks of that parent and its affiliates. It is the simplest and most straightforward structure.

• Full control over underwriting, investment, and governance
• Losses and gains flow entirely to the parent
• Requires sufficient premium volume to justify operating costs (typically $1M+ in annual premium)
• Best suited for large organisations with well-understood, reasonably stable loss experience

Group Captive

A group captive is owned by multiple unrelated companies, each of which shares in the underwriting risk of the collective pool. Members contribute capital and premiums proportionate to their risk.

• Allows smaller companies to access captive benefits that wouldn't justify a single-parent structure
• Requires alignment among members on underwriting standards and loss control
• Poor performers in the group can negatively affect all members — governance and member selection are critical

Association Captive

Sponsored by a trade association, professional group, or industry body, an association captive insures the members of that group. Similar to a group captive, but membership in the sponsoring association is typically a prerequisite.

Protected Cell Company (PCC) / Rent-a-Captive

A protected cell company is a single legal entity with multiple segregated cells, each owned by a different participant. The assets and liabilities of each cell are legally ringfenced from the others.

• Allows companies to access captive benefits without the cost of forming a standalone entity
• Each cell operates economically as if it were a separate captive
• Popular in domiciles such as Guernsey, Cayman Islands, and Vermont
• A rent-a-captive is the contractual cousin: a sponsor — often an insurer or captive manager — makes its licensed vehicle available to participants by agreement, and the segregation between participants may be contractual rather than statutory. These facilities remain widely used, so the label matters less than the legal separation mechanics behind it
• An incorporated cell or series structure goes one step further, making each cell its own legal entity

For many mid-market organisations these sponsored structures — cells, rent-a-captives and similar facilities — are the first step into captive insurance: lower fixed cost, faster to start, and reversible in a way that owning an insurance company is not. Choosing an entry vehicle is a decision in its own right. The Academy treats it in depth in lesson 2.5 — Choosing Your Entry Vehicle in the Captive Formation module (members): the cell-versus-standalone economics, the participation agreement terms that decide a participant’s real position, and the migration path when a programme outgrows its start.

Agency Captive

An agency captive is formed by an insurance agency or broker to reinsure a portion of the risks they place with commercial carriers. The captive participates in the underwriting results of the book of business it insures.

Structure	Owner(s)	Best For	Min. Premium (est.)
Single-Parent	One parent entity	Large orgs with stable losses	$1M+
Group Captive	Multiple unrelated companies	Mid-market companies	$250K per member
Association Captive	Trade association members	Industry groups	Varies
Protected Cell (PCC)	Individual cells	Companies wanting low setup cost	$500K+
Agency Captive	Insurance agency/broker	Producers with large books	Varies

Risk Retention Group (RRG)

A risk retention group is a liability insurer owned by its own insureds, formed under the federal Liability Risk Retention Act. Its defining feature is regulatory rather than structural: an RRG is licensed by a single chartering state and may then register and write business in other states without obtaining a separate licence in each one. That federal preemption is what makes the form attractive to groups of similar businesses operating across state lines.

The preemption comes with three conditions that are not negotiable. An RRG may write liability coverage only — no property, no workers' compensation, no personal lines. Every insured must be an owner and every owner an insured. And members must be engaged in similar or related businesses exposed to similar liability. An RRG also carries governance obligations that an ordinary group captive does not, including director independence requirements and board oversight of material service provider contracts.

Lesson 5.4 covers the LRRA framework, the governance standards and the RRG-versus-group-captive decision in full.

How to Narrow Structure Choice

In practice, structure selection should start with three questions: (1) how much annual premium is realistically available to support a captive, (2) how much control and flexibility the parent needs over underwriting, investment, and governance, and (3) whether adding unrelated risk is necessary to improve economics or tax and regulatory defensibility. A pure captive with insufficient premium, or a group or cell structure chosen solely because the setup cost is low, will usually create more long-term friction than it saves upfront.

Reinsurance Structures

Most captives do not issue policies directly to policyholders (the parent company). Instead, they participate in the risk through a reinsurance arrangement:

• A fronting carrier — a licensed, admitted insurer — issues the policy to the parent company.
• The captive then reinsures all or part of that risk from the fronting carrier.
• This arrangement allows the captive to function in jurisdictions where it is not licensed and satisfies contractual requirements (such as certificates of insurance) that require an admitted carrier.

One point of vocabulary that will save confusion later: in a fronted programme the licensed carrier is legally the insurer and the captive is its reinsurer. The carrier "cedes" risk to the captive, which "assumes" it. So documents will call the carrier the ceding company and the captive the assuming reinsurer, even though everyone in the room thinks of the captive as the insurer. Lesson 7.1 sets out who is called what, and why fronting is a reinsurance transaction in everything but purpose.

The fronting carrier relationship is one of the most consequential — and often misunderstood — elements of captive structure design. We cover it in depth in Module 07.

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