The term captive, also known as "captive insurance", refers to a company-owned insurance company that covers the risks of the respective parent company, usually larger industrial companies.

Such cases are referred to as self-insurance or self-insurance, where a company pays the risk premiums to its own captive company.

Unlike with → Retention the captive bears corporate risks outside the core balance sheet. As a result, captive companies can be important elements for targeted risk management and cost optimisation despite the high financial resources and operating costs required. To achieve this, the running costs of the captive solution must be lower than the costs of insurance premiums in the insurance market.

The aim is to reduce the overall risk costs by adjusting the premium amount to the actual claims experience of the parent company. Developments on the insurance market are not relevant here.

Depending on the size of the existing risks and the insurance requirements of a company, the captive subsidiary may provide all or part of the insurance cover. In the case of complete coverage by the captive, it assumes all the tasks of a primary insurer.

Source reference: See VDT publication "VDT article series part 5 l Glossary" and the source indicated there.