🇰🇾Captive insurance company: Bermuda, Cayman, Guernsey and Malta

Concept

A captive insurance company (captive) is an insurer or reinsurer owned by a group of companies that insures primarily the group's own risks. Pooling those risks in one regulated company diversifies them and lets the group buy reinsurance more cheaply. The OECD Transfer Pricing Guidelines treat the arrangement as insurance where the captive genuinely pools risk, improves the group's economic capital and can actually suffer a loss (Chapter X, Section E).

EU law is narrower. Under Article 13 of Solvency II a captive owned by a non-financial undertaking, or by a financial one that is not an insurer, covers exclusively the risks of its own group, and Malta's Insurance Business Act repeats the definition. Bermuda and the Cayman Islands sort captives into classes by their share of related business — the risks of owners and their groups — and some classes admit third-party business; in Guernsey any unrelated business makes an insurer commercial.

How a captive works

A captive often cannot issue the policy itself: certain risks must by law be placed with regulated insurers. The group company then buys the policy from an unrelated fronting insurer, which reinsures most or all of the risk to the captive and keeps a commission for its costs and retained risk; most of the premium passes to the captive (OECD Guidelines, para 10.214).

At end-2023, per the Bermuda Monetary Authority (BMA), 67% of Bermuda captives were pure captives, insuring only their parent's and its affiliates' risks; rent-a-captives made up 8%, and group, association and agency captives 10% together (BMA).

Key parameters

Sources are statutes, regulations, fee schedules and regulators' statistics; timing is marked as statute, published target or practice, and statistics carry their dates.

Offshore capital starts in the low hundreds of thousands, and a Bermuda Class 1 pays the lowest fee; Malta's floor runs into millions of euros, the price of insuring group companies across the EEA directly.

Bermuda: Insurance Act 1978 classes

The Insurance Act 1978 sorts general-business captives into three classes by ownership and share of related business (ss.4B–4D):

• Class 1 — a company wholly owned by one person and insuring only that person's risks, or a group affiliate insuring only the risks of other group affiliates or its own shareholders;
• Class 2 — a company owned by two or more unrelated persons with at least 80% of net premiums from the owners' and their affiliates' risks, plus a would-be Class 1 writing up to 20% outside business;
• Class 3 — the residual class for anything not registrable in another class.

Long-term captives take Class A (one owner or group) or Class B (several unrelated owners, at least 80% of premiums). The commercial Classes 3A and 3B start where unrelated business reaches 50% of net premiums or of loss provisions; unlike the captive classes, they must meet the enhanced capital requirement (ECR) and keep a head office in Bermuda.

Capital, solvency and fees

The Act separates paid-up share capital (s.7) from the minimum solvency margin, below which a captive's statutory capital and surplus may not fall (Insurance Returns and Solvency Regulations 1980); the annual fee comes from the 2026 BMA fee schedule.

Moving from Class 1 to Class 3 raises the margin floor more than eightfold and the excess-premium and reserve tests from 10% to 15%. Every general-business insurer, captives included, also holds relevant (liquid) assets of at least 75% of its relevant liabilities; how regulators calculate capital is covered in “Regulatory Capital”.

People in Bermuda

The Act requires a captive to have several BMA-approved persons, but not to be directed and managed from Bermuda.

Economic substance rules are a separate layer (see “Substance”).

Process and market

After incorporation through the Registrar of Companies, the application goes to the BMA's Insurance Assessment and Licensing Committee (IALC). A BMA bulletin of 29.01.2026 sets out its practice: the committee generally meets every Friday on applications filed by 5 p.m. that Monday, applicants typically hear the decision the same day, and an approval is valid for six months. The IALC weighs the unrelated-business share, the parent's ability to fund the captive's exposures and the fitness and propriety of the board and service providers (see “Qualifying Holdings and Fit & Proper”).

The application fee is US$800; incorporation, the manager and the audit are paid separately (see “What a Licence Costs to Hold Each Year”). Per the BMA's 2025 Annual Report, 608 of the 1,210 insurers registered at end-2025 were in the captive classes, against 632 of 1,239 a year earlier; captives wrote about US$34 billion of gross premium in 2024.

Cayman Islands: Class B

Captives are licensed as Class B insurers under the Insurance Act 2010. The share of net premiums from related business fixes the sub-class, and the sub-class fixes the minimum and prescribed capital requirements (MCR and PCR), set in US dollars by the capital and solvency regulations.

Under CIMA's licensing policy, related business comes from the insurer's members or from a group related to it through common ownership or a common risk management plan; direct writing, fronting or reinsurance all qualify if the original risk is an affiliated member's. For long-term business the MCR is US$200,000, 300,000 and 400,000. Below the PCR an insurer submits a remedial action plan, below the MCR CIMA may take regulatory action; capital may be share capital, letters of credit, subordinated loans or other approved means.

Sub-class B(iv) does not exist: of the 2013 amending law that would have created it, only section 5 on portfolio insurance companies came into force, on 16.01.2015.

Company and manager

Only an exempted company with at least two directors may be licensed, and it may write Cayman domestic business only below 5% of net premiums or with CIMA's prior approval. An insurer without a CIMA-approved permanent place of business appoints a licensed insurance manager in the Islands and keeps its records there; CIMA counted 23 licensed managers at Q2 2026. The company layer is covered in “Cayman Islands Company”.

Process, fees and statistics

CIMA's Management Committee considers complete applications weekly; approval conditions must be met within six months, after which the licence is issued within 2–3 business days, and CIMA publishes no overall processing deadline. Fees are set in Cayman dollars (CI$) and payable in US dollars at US$1.00 = CI$0.82 (CIMA); the higher annual fees of SL 65 of 2025 apply from 19.12.2025.

A licensee in run-off pays half. CIMA's statistics for Q2 2026 count 721 international insurers, 693 of them Class B; by CIMA category 293 are pure captives, 142 group captives, 137 SPCs and 115 reinsurers. 88% of licensees insure North American risk, most often workers' compensation and medical malpractice.

Guernsey: Category 5

The Guernsey Financial Services Commission (GFSC) applies the Insurance Business (Solvency) Rules 2021, which place every licensed insurer in one of six categories. A captive is Category 5: a life or general (re)insurer created and owned by industrial, commercial or financial entities or associations to cover risks (other than commercial risks) of its owners or entities connected to them. Any unrelated business moves an insurer into the commercial Categories 1–4, and in a protected cell company each cell and the core are categorised separately.

Capital and representative

The Capital Floor and the MCR are the same for a captive and a commercial insurer; only the calibration of the risk-based PCR differs.

As the PCR can never be below the MCR, a captive gets a lighter risk-based requirement over the same floor. Every insurer appoints a general representative who acts for it and answers for its returns: an executive director or employee ordinarily resident in Guernsey, or a licensed insurance manager. According to the GFSC, most international insurers are administered by licensed managers acting as their general representatives; there were 23 authorised managers at 31.12.2025.

Timing, fees and statistics

The GFSC's published target is an in-principle decision within 28 calendar days of a fully completed application. Under the fees from 01.01.2026 a captive, including a PCC or ICC core writing captive business, pays £7,850 on application and yearly, a captive cell £2,520, and a pure-captive manager £6,820 a year. GFSC statistics at 31.12.2025 count 549 international insurance entities, including 44 PCCs and 14 ICCs; captives account for 196 of the 327 non-cellular insurers and 126 PCC cells.

Malta: a captive under Solvency II

A Maltese captive is authorised by the MFSA under article 7 of the Insurance Business Act like any insurer, but under the captive regulations the MFSA decides a complete application within three months instead of the general six. With the MFSA's written approval a captive may appoint an insurance manager, an intermediary enrolled under the Insurance Distribution Act. Fees are set by L.N. 368 of 2024.

The latest MFSA statistics, for end-2023, show 7 captives among 66 Maltese-licensed insurers, plus 14 PCCs with 79 cells. The taxation of a Maltese company is covered in “Malta Holding”.

Cells: SAC, SPC, PCC and ICC

A cell company houses several programmes in one structure and keeps each one's assets and liabilities apart; rent-a-captives, which let non-owners use their capital, surplus and licence, usually work through cells. The ring-fence depends on whether the cell is a legal person and whether its creditors can reach the core.

Since 2024 a Maltese cell writing only captive business and holding own funds at least equal to its solvency capital requirement (SCR) may agree in writing that only its own assets answer for its liabilities. Maltese mechanics are covered in “Malta: Cell Companies and the MFSA Licensing Hub”, and recognition of segregation abroad in “Investment Fund Domicile”.

Fronting and collateral

The diagram shows who issues the policy and who carries the risk in a fronting arrangement.

The fronter's policy covers the group company, while the risk and most of the premium pass to the captive owned by the same parent. CIMA expects a Class B business plan to set out the fronting arrangements, collateral requirements and how collateral is held, the fronter's rating by a recognised agency and the reinsurance programme with draft agreements (see “Business Plan and Programme of Operations for the Regulator”). Fronting mechanics and collateral forms are covered in “Insurance MGA and Fronting”, and fronting as work under another firm's licence in “License for Rent”.

The captive in EU law

Because Article 13 says “exclusively”, any third-party business takes a company outside the EU captive definition, and so outside the captive reinsurer's lower floor and the reliefs Directive (EU) 2025/2 will apply from 30.01.2027.

Solvency II minimum capital

Solvency II gives captives no general capital discount. The absolute MCR floors, as revised by Commission Notice 2021/C 423/12, have applied since 19.10.2022 and remain in force at 02.10.2026.

Only a captive reinsurer gets a lower floor: a third of an ordinary reinsurer's and about half of a captive direct non-life insurer's.

Directive (EU) 2025/2

Directive (EU) 2025/2 has been in force since 28.01.2025, but Member States must transpose it by 29.01.2027 and apply it from 30.01.2027. From that date it will create a lighter-touch category of “small and non-complex undertakings”, in which captives get three advantages:

• the cross-border premium and reinsurance-accepted tests will not apply to them;
• a captive will qualify even when it fails the size tests, provided its insureds are group entities (natural persons under group policies below 5% of technical provisions) and it writes no compulsory third-party liability insurance;
• every captive will be exempt from the new audit of the balance sheet in the solvency and financial condition report (SFCR), although a Member State may extend the audit to captives.

Captives meeting the same two conditions will publish only the quantitative SFCR data for market professionals. Malta has not yet transposed the Directive. After consulting from 15.04.2026, the MFSA said in a feedback statement of 11.09.2026 that only undertakings fully meeting the captive definitions will get the simplified criteria, without supervisory discretion, and that captive PCC cells not impinging on the core may use the exemption from the external SFCR audit.

Bermuda equivalence without captives

Commission Delegated Decision (EU) 2016/309 recognises Bermuda's regime as equivalent to Solvency II for reinsurance, group supervision and solvency calculation, but expressly excludes the rules on captives and special purpose insurers. An EU insurer fronting for a Bermuda captive therefore cannot treat that reinsurance like reinsurance with an EU or equivalent reinsurer (Solvency II Art. 172), and the ban on requiring pledged assets covers only reinsurers from equivalent regimes (Art. 173), so it does not stop the fronter from asking the captive for collateral.

Tax: domicile, United States and OECD

Tax in the domicile

The three offshore domiciles treat a captive's profits in different ways.

A captive of a Bermuda group below the threshold stays outside the tax, and the Cayman undertaking may also cover the company's shares and the dividends and interest it pays. The global minimum tax for large groups is covered in “Pillar Two”.

United States: §831(b), micro-captive disclosure and excise tax

Under IRC §831(b) an electing small non-life insurer is taxed only on investment income, not on underwriting profit. The premium limit for taxable years beginning in 2026 is US$2,900,000 (US$2,850,000 for 2025). No more than 20% of premiums may come from one policyholder unless owners' stakes in the captive mirror their stakes in the insured businesses, and under fronting each holder of an underlying direct policy counts as a policyholder.

IRS final regulations of 14.01.2025 (T.D. 10029) created two disclosure tiers for a micro-captive — a company with a §831(b) election at least 20% owned by the insureds, their owners or related persons. Both use a financing test (in the last five years the captive financed the insureds, owners or related persons or otherwise passed premium money back to them) and a loss ratio.

On 15.04.2026 the US District Court for the Southern District of Texas declared the listed-transaction rule unlawful and vacated it (Drake Plastics v. IRS), holding that the IRS had not shown on the record that the transactions it described were tax-avoidant. It upheld the transaction-of-interest rule, whose disclosure duties are materially the same, and remanded to Treasury and the IRS; in March 2026 the Eastern District of Tennessee had upheld the whole rule (CIC Services v. IRS).

Premiums for US risks paid to a captive that stays foreign, without the §953(d) election, bear the US excise tax, and US anti-deferral rules reach the captive.

The related person insurance income (RPII) rule does not apply if insureds and related persons own less than 20% of the captive's vote and value, or if such income is below 20% of its insurance income. General CFC rules are covered in “US CFC Rules” and the “CFC Master Guide”, and the §953(d) election for life insurers in “PPLI”.

OECD Chapter X

Section E of Chapter X of the OECD Transfer Pricing Guidelines (paras 10.189–10.226) first asks whether the arrangement is genuinely insurance. All or substantially all of six indicators should be present:

• diversification and pooling of risk in the captive;
• a real improvement in the group's economic capital;
• regulation of the captive and any reinsurer under broadly similar regimes;
• risks that would otherwise be insurable outside the group;
• the requisite skills, including investment skills, at the captive's disposal;
• a real possibility of loss.

Premiums may be priced on comparable uncontrolled prices or actuarial analysis. A captive pooling group risks to buy cheaper reinsurance earns a reward for its basic services, and the remaining synergy goes back to the insureds as lower premiums (see “Transfer Pricing”). Regulators' expectations of a licensee's people and functions are compared in “Licensee Substance: People, Office and Functions”.

Popular, but it ends badly

Four common structures run into express rules.

Choosing a domicile

The choice starts with where the risks sit: of the four domiciles only Malta insures group companies across the EEA directly, while an offshore captive reaches them through fronting. Then come the third-party share, the number of owners and the capital the group will hold.

Bermuda and Cayman have the largest captive populations, Guernsey offers a 90% PCR and both cell forms, Malta an EU passport at the price of Solvency II capital; other regimes are in the “Financial Licences” hub.