According to the Captive Insurance Companies Association, over 90% of Fortune 500 companies utilize some form of captive insurance to manage risk and optimize financial performance. Yet, many mid-sized and growth-stage companies are just beginning to explore the significant financial advantages captives offer—especially for improving EBITDA, cash flow control, and long-term insurance cost reduction.

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At their core, a captive insurance company is a licensed insurance company owned by the businesses they insure. This structure allows companies to retain underwriting profits, access reinsurance markets, and gain a level of flexibility that traditional insurers simply cannot provide. For CFOs looking to unlock trapped capital and improve EBITDA, captives represent an often-overlooked advantage.

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How Starting a Captive Insurance Can Reduce Your Total Insurance Expense

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Over Time Your Insurance Company Profits and Insurance Premiums Go Down

• One of the most compelling financial incentives for starting a captive is the ability to retain underwriting profits. In a traditional insurance model, premiums are paid to a third-party insurer, who profits if claims are lower than expected. With a captive, those profits remain inside your organization.

• Over time, as your captive builds up reserves and demonstrates strong loss performance, your premiums can decrease. That’s because your captive uses your actual loss data—not generalized industry assumptions—to price risk. This leads to more accurate, and often lower, premiums. You're no longer subsidizing others’ poor performance.

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Another Profit Center Is Created

• Beyond lowering insurance costs, a captive can evolve into a revenue-generating entity. For example, a captive may eventually write coverage for affiliated or even third-party businesses, creating a new stream of income for the parent company. Public companies can use captives to smooth earnings and protect shareholder value, while private companies often use them to isolate risks and improve operational transparency.

• By underwriting hard-to-insure risks—such as cyber liability, environmental liability, or product recalls—your captive fills coverage gaps that the commercial market avoids or overprices. That flexibility translates into stronger risk management and strategic value.

 

Add Back to EBITDA

• Because captives retain underwriting profits and reduce the cost of risk over time, they can enhance your EBITDA. Unlike traditional insurance premiums, which are expensed with no return, captive-related profits can be added back to your bottom line.

• Also, because captive reserves are held in a regulated insurance entity (not just booked on your corporate balance sheet), they can be viewed more favorably by auditors and stakeholders. CFOs can leverage this structure to better reflect the company's actual financial health—especially when preparing for financing or transactions.

 

 

How to Start a Captive Insurance Company

 

Find an Independent Captive Manager. Reach Out to Us at Wexford Insurance.

• The first step in forming a captive is to partner with a knowledgeable captive manager. At Wexford Insurance, we specialize in helping companies explore, design, and implement custom captive solutions. Whether you’re exploring group captives, cell structures, or want to form your own single-parent captive, our team works with you to assess risk, complete feasibility studies, and handle regulatory approvals.

• We also support existing captives seeking to expand their programs, improve compliance, or optimize performance using advanced analytics and benchmarking.

 

Find a Captive Manager

• A captive manager is your operational partner—handling day-to-day administration, regulatory filings, and technical services like actuarial reviews and reinsurance placement. These professionals ensure your captive complies with the licensing jurisdiction’s rules while optimizing performance across all functions, including claims, underwriting, finance, and compliance.

• Make sure your captive manager is independent, experienced across industries, and has a track record of successful captive formation and governance.

 

Start Your Own Captive From Scratch

• If you decide to start your own captive from the ground up, expect to go through a detailed feasibility process. This includes:

  • Assessing your insurable risks and historical losses

  • Projecting capital requirements and operational costs

  • Choosing a domicile (e.g., Vermont, Delaware, Cayman Islands)

  • Preparing a robust business plan for regulatory approval

  • Setting up governance including a board, underwriters, actuaries, and auditor. 

• Once licensed, your captive becomes a fully regulated insurer. You’ll attend regular board meetings, submit quarterly and annual reports, and continuously refine your program to match evolving risks and financial goals.

 

Captive insurance is not just about saving on premiums—it's a strategic financial tool for improving risk management, optimizing capital, and creating long-term enterprise value. For CFOs ready to shift from passive premium payer to active risk owner, a captive could be one of the smartest moves you make.​