Captives and Group Captives

A captive is an insurance company owned by the operator, or by a group of operators, that formally insures their own risk. A single-parent captive serves one organization; a group captive pools several. Because a captive is usually not licensed where the risk sits, a licensed fronting carrier issues the policy and reinsures it back to the captive, secured by collateral.

Captives are common at scale in senior care because the frequency layer is predictable enough to finance rather than insure, and because a captive keeps underwriting profit that would otherwise leave the business. The parts that surprise first-time owners are the collateral and the exit. The fronting carrier will require a letter of credit for the full expected loss plus a margin, and that facility reduces borrowing capacity elsewhere in the business, which matters for an operator carrying real estate debt. Unwinding is slower still: the captive must run off claims for years after it stops writing, and the collateral cannot be released until it does. Treat it as a capital structure decision with the CFO and the lender in the room, not as a way to reduce next year premium.