Captive insurance groups, also known as captive insurance companies, are insurance companies that are owned and controlled by the same entity that they insure. They were first introduced in the 1950s as a way for large corporations to insure themselves against risks that were not adequately covered by the traditional insurance market.

Captive insurance groups have a long and complex history, with their rise to popularity in the 1960s and 1970s and the subsequent scrutiny by the Internal Revenue Service (IRS) in the 1980s. In the early days of captive insurance, many large corporations saw the potential for significant cost savings by insuring themselves rather than purchasing insurance from traditional insurers. Captive insurance groups also allowed these corporations to have more control over their risk management and to tailor their coverage to their specific needs.

However, the IRS began to scrutinize captive insurance groups in the 1980s due to concerns about their use as tax shelters. Many captive insurance groups were found to be in violation of tax laws and were ordered to pay back taxes and fines. This led to a decrease in the number of captive insurance groups and a stricter regulatory environment for those that remained.

In recent years, the IRS has taken a more favorable stance towards captive insurance groups. In 2002, the IRS issued guidelines for the formation and operation of captive insurance groups, which provided more clarity and structure for these groups. The IRS has also recognized the role that captive insurance groups can play in risk management and has provided favorable tax treatment for certain types of captive insurance groups.

There are risks associated with using captive insurance groups, including the potential for inadequate coverage and the risk of regulatory scrutiny. Captive insurance groups may not have the financial resources or expertise of traditional insurance companies, which could lead to inadequate coverage in the event of a large loss. In addition, captive insurance groups are subject to regulatory oversight and must comply with all applicable laws and regulations.

The reinsurance market is an important part of the captive insurance industry. Reinsurance is the practice of transferring a portion of the risk associated with a policy to another insurance company. This is often done to spread the risk and reduce the potential impact of a large loss. Captive insurance groups can use the reinsurance market to transfer some of the risk associated with their policies to reinsurers.

There are several strategies that captive insurance groups can use when employing reinsurance. One strategy is to use reinsurance to transfer a portion of the risk associated with a particular policy or group of policies. This can help to mitigate the potential impact of a large loss and ensure that the captive insurance group has adequate financial resources to pay claims.

Another strategy is to use reinsurance to manage the overall risk profile of the captive insurance group. This may involve using reinsurance to transfer risks that are deemed to be too high or too volatile for the captive insurance group to retain. Captive insurance groups may also use reinsurance to diversify their risk portfolio and to access expertise and resources that they may not have in-house.

There are several captive insurance groups that are focused on insuring farmers and food producers. Some examples include AgriCaptive Insurance Company, Farm Family Casualty Insurance Company, and National Farmers Union Property and Casualty Company. These captives are designed to provide insurance coverage for the unique risks that farmers and food producers face, such as weather-related losses, crop failures, and livestock mortality.