Types of Captives:
Pure Captive: A pure captive insurance company is the most common type of captive and is formed to insure the risks of its parent company, affiliated companies, and certain controlled unaffiliated business entities. Pure captives provide organizations with greater control over their risk financing while allowing them to customize their insurance program and retain the underwriting results associated with their own loss experience.
In Iowa, a pure captive must maintain a minimum capital and surplus of $250,000 and may be organized as a stock company, mutual insurer, limited liability company, or nonprofit corporation. Pure captives prepare their financial statements using generally accepted accounting principles (GAAP) and are not subject to statutory investment restrictions, providing flexibility in managing invested assets.
Industrial Insured Captive: An industrial insured captive enables sophisticated commercial insurance buyers to insure the risks of members of an industrial insured group, their affiliated companies, and certain controlled unaffiliated business entities. Industrial insured captives are commonly used by organizations with significant commercial risk exposures and established insurance purchasing expertise.
Each member of the industrial insured group must:
- Procure insurance through a full-time insurance manager or buyer;
- Purchase at least $25,000 of commercial insurance annually; and
- Employ at least 25 full-time employees.
Industrial insured captives in Iowa must maintain a minimum capital and surplus of $500,000 and may be organized as a stock company, mutual insurer, nonprofit corporation, limited liability company, or reciprocal insurer. They prepare financial statements using GAAP and follow investment standards established by the commissioner.
Branch Captive: A branch captive is an existing offshore (alien) captive insurance company that conducts insurance business in Iowa through a branch operation while maintaining its existing foreign domicile. This structure enables organizations to conduct captive insurance business in Iowa without redomesticating the entire captive.
A branch captive must obtain a certificate of authority to transact insurance in Iowa. Minimum capital and surplus requirements mirror those applicable to the captive's organizational structure. Branch captives prepare their financial statements using generally accepted accounting principles (GAAP) and are not subject to statutory investment restrictions.
Life Captive Reinsurance Company: A life captive reinsurance company (LCRC) is a captive insurance company formed to reinsure life insurance and annuity risks of its affiliated insurers. Life captive reinsurance companies are commonly used by affiliated insurance groups to reinsure life insurance and annuity risks in support of reserve financing and capital management strategies.
In Iowa, a life captive reinsurance company must maintain a minimum capital and surplus of $5 million and may be organized only in the forms authorized under Iowa Code Chapter 521J for life captive reinsurance companies. LCRCs are subject to a regulatory framework specifically designed for the unique characteristics of life insurance and annuity reinsurance, including specialized capital, investment, reporting, and governance requirements. Unlike traditional captive insurance companies, LCRCs prepare their financial statements using statutory accounting principles (SAP) and are subject to investment standards designed to promote long-term financial strength and solvency.
Life captive reinsurance companies provide life insurers with a specialized framework for reinsuring life insurance and annuity risks in support of reserve financing and prudent capital management.
Protected Cell Captive: A protected cell captive is a captive insurance company that enables multiple participants to insure their risks through separate legally protected cells while sharing the infrastructure and governance of a single captive insurance company. Each protected cell is legally segregated, ensuring that the assets and liabilities of one cell are protected from the obligations of every other cell and from the protected cell captive company's general account.
In Iowa, a protected cell captive company must maintain a minimum capital and surplus of $100,000, while each protected cell must be capitalized based on its individual risk profile. Protected cell captive companies must be incorporated or organized as a limited liability company, and individual protected cells may be organized as Series LLCs. Protected cell captive companies prepare their financial statements using generally accepted accounting principles (GAAP) and are not subject to statutory investment restrictions.
Protected cell captives provide organizations with a flexible framework for sharing infrastructure while maintaining legal segregation of assets and liabilities among participants.
Special Purpose Captive: A special purpose captive is a flexible captive insurance company designed to accommodate specialized insurance programs that do not fit within Iowa's traditional captive classifications. This category commonly includes group captives and association captives, allowing multiple organizations with similar risk profiles or common affiliations to collectively finance and manage their insurance risks. Special purpose captives may also be used for innovative risk financing arrangements or insurance programs established for the benefit of political subdivisions.
Rather than requiring a fixed minimum capital and surplus, Iowa establishes capital requirements based on the captive's business plan, feasibility study, pro forma financial projections, and the nature of the risks to be insured. A special purpose captive may be organized as a stock company, mutual insurer, limited liability company, nonprofit corporation, or reciprocal insurer. Special purpose captives prepare their financial statements using generally accepted accounting principles (GAAP) and are not subject to statutory investment restrictions.
Special purpose captives provide organizations with a flexible framework for developing customized and innovative risk financing solutions.
Risk Retention Group: A risk retention group (RRG) is a liability insurance company formed under the federal Liability Risk Retention Act of 1986 to provide liability insurance to its members, who share similar or related business activities or risk exposures. Once licensed in a single state, an RRG may operate nationwide by registering in the other states in which it conducts business.
In Iowa, a captive Risk Retention Group must maintain a minimum capital and surplus of $500,000 and may be organized as a stock company, mutual insurer, limited liability company, nonprofit corporation, or reciprocal insurer. Risk Retention Groups are regulated under Iowa Code Chapter 515E and are also subject to the provisions of Iowa Code Chapter 521J governing captive insurance companies. To the extent the provisions of the two chapters differ, the provisions of Chapter 521J control. Risk Retention Groups prepare their financial statements using generally accepted accounting principles (GAAP) and are subject to investment standards established by the commissioner.
Risk Retention Groups provide organizations with a cost-effective means of collectively financing liability risks while permitting a single-state license to support operations across multiple jurisdictions under federal law.
Service Providers:
- Captive Manager – an individual on the Iowa approved captive management firms list and, pursuant to a written contract with a captive company, provides and coordinates services including but not limited to accounting, statutory filings, signed annual statements and coordination of related services. The captive manager acts as an intermediary who facilitates and assists the captive company in meeting its statutory requirements.
- Qualified Actuary – an individual who is a member of the American academy of actuaries, is qualified to provide the certifications as described in the United States qualifications standards promulgated by the American academy of actuaries pursuant to the code of professional conduct adopted by the American academy of actuaries, the society of actuaries, the American society of pension professionals and actuaries, the casualty actuarial society, and the conference of consulting actuaries. The individual shall be approved by the commissioner and shall be a Fellow of the Casualty Actuarial Society, a member in good standing of the American Academy of Actuaries, a member in good standing of the Society of Actuaries, or an individual who has demonstrated competence to the commissioner.
- Independent Certified Public Accountant – a certified public accountant retained to conduct the independent annual audit may only be appointed from the list of approved certified public accounting firms or individual certified public accountants maintained by the commissioner. The accountant must be independent with respect to the captive company, conforms to the standards of the profession as contained in the Code of Professional Ethics and pronouncements of the American Institute of Certified Public Accountants and the Financial Accounting Standards Board, and is properly licensed by an appropriate state licensing authority.