What is a captive insurer?

• A. An insurer owned by a parent firm for the purpose of insuring the parent firm's loss exposures
• B. A government insurance program
• C. An insurer offering consumer auto policies
• D. A mutual insurer owned by policyholders

Answer: (A)

Captive insurance is a structure where an insurer is created and owned by a parent company to insure that company’s own risks and loss exposures. This arrangement gives the parent firm control over pricing, risk financing, and claims handling, and can provide cost efficiencies and easier access to reinsurance. That aligns with the idea of an insurer owned by a parent firm specifically to insure the parent firm’s losses. In contrast, a government insurance program is run by the state for public purposes, a typical consumer auto insurer serves external customers, and a mutual insurer is owned by its policyholders, not by a parent company seeking to insure its own exposures.