Captive insurers

The concept

A captive is an insurance or reinsurance company owned by a group whose main business lies outside insurance, which it uses to insure or reinsure the risks of its own group companies. The Swiss Federal Supreme Court described captives in 1988 as insurance institutions controlled by a parent company and serving its operational purposes.¹ The motives for founding one are several. A group that retains a layer of its own risk can budget its loss costs, smooth them over time and capture the underwriting profit that it would otherwise pay to a commercial insurer. A captive gives direct access to the reinsurance market, where cover for large risks may be cheaper than in the primary market. It can also provide cover that the commercial market refuses or offers only at high prices. The loss data it collects, finally, improve the group’s risk management. Tax deferral, finally, has long played a role in the choice of domicile, although national anti-avoidance rules have narrowed that motive considerably.

Most Swiss captives are reinsurance captives. A group company buys a policy from a licensed commercial insurer, which issues the policy in the country where the risk lies and satisfies local regulatory requirements. The insurer then cedes all or part of the risk to the group’s captive, which is typically domiciled in a centre with experienced captive managers. The commercial insurer that performs this fronting service is often a large global group. Swiss Re Corporate Solutions, the commercial insurance arm of Swiss Re, is one of the providers that offer captive fronting and related services to corporate clients.² Aon’s captive managers noted in 2020 that most owners of Swiss captives choose to be licensed as reinsurance captives, and that FINMA allowed reinsurance captives a simplified model for the Swiss Solvency Test in recognition of the particular relationship between such a captive and its parent.

Swiss captives before the revision

The supervisory treatment of reinsurance captives in Switzerland goes back to the early years of the Swiss Solvency Test. In December 2006 the Federal Office of Private Insurance, the predecessor of FINMA in insurance supervision, issued a directive on the capital requirements of reinsurance captives that were exempt from the full Swiss Solvency Test. The directive measured insurance risk through a risk gap, defined as the difference between the contractually agreed maximum annual losses and the expected annual premiums, and added simple factor charges for market, credit and concentration risk. Hybrid instruments or guarantees by the owner could, under conditions, cover shortfalls above the minimum capital.³ The approach recognised a simple point. A captive whose maximum possible loss is fixed by contract and whose only policyholder is its own group does not need the elaborate stochastic modelling that a commercial reinsurer with thousands of cedants requires.

FINMA’s risk-based supervision placed most captives in the two lowest of its five supervisory categories, which meant a lower intensity of supervision. The number of Swiss reinsurance captives has been modest by international standards. FINMA’s insurance market report for 2024 counted fifty reinsurers under its supervision at the end of that year, of which twenty-three were reinsurers in the ordinary sense and twenty-seven were reinsurance captives, up from twenty-four captives a year earlier.⁴ Swiss captives are thus few in number but often attached to large industrial and commercial groups. For these owners, a Swiss captive has the advantage of proximity to headquarters in Switzerland and of a supervisor whose reputation is valued by rating agencies, auditors and fronting insurers.

The reforms of 2024

The revised Insurance Supervision Act introduced a differentiated approach under which the intensity of supervision depends on the need of policyholders for protection. Two elements matter for captives. First, insurers that deal only with professional policyholders may be exempted from the organisation fund, tied assets and recovery plan requirements under Article 30a of the revised Act. The definition of professional policyholders follows Article 98a para. 2 lit. b to g of the Insurance Contract Act, with occupational pension schemes excluded, and includes supervised financial institutions, insurers and companies with professional risk management. Insurers must clarify and document the status of such policyholders before concluding a contract and must inform them that their claims will not be covered by tied assets. Second, captives receive their own provision. Under Article 30d of the revised Act, a captive that insures the risks of its group must submit the relevant parts of its business plan to FINMA and keep its captive business separate from any third-party business, while the clarification and disclosure duties that apply to professional policyholders do not apply to it. Reinsurers are exempted from these obligations altogether.⁵

A commentary by Pestalozzi on the draft legislation described the relief for captives as extensive, covering organisation funds, tied assets, certain insurance rules, restructuring provisions and portfolio transfer requirements, and emphasised that the relief did not extend to third-party business.⁶ The rationale is that tied assets exist to protect policyholders who cannot protect themselves. When the policyholder and the insurer belong to the same group, the only persons who could be harmed by an insolvency of the captive are the group itself and its creditors, who are protected by the general law of corporations and insolvency. For direct captives, the reform thus removes a burden that had long made Switzerland less attractive than competing domiciles. For reinsurance captives, which were already exempt from tied assets as reinsurers, the reform matters mainly as a signal that the supervisor is expected to tailor its approach to the risk profile of the entity.

Luxembourg, Liechtenstein and other European domiciles

Switzerland competes for captives with several European centres, each with a different selling point. Luxembourg is the largest captive reinsurance centre in the European Union. Luxembourg for Finance, the promotion agency of the Grand Duchy, speaks of about 200 captive reinsurers and traces the regulatory framework to a law of 24 February 1984. The central feature of the Luxembourg model is the equalisation reserve, known as the provision pour fluctuation de sinistralité, which allows a captive to build up a tax-deferred reserve against future losses up to a ceiling. By the end of 2023 assets of EUR 12 billion had been accumulated through this reserve in Luxembourg captives.⁷ Because a Luxembourg captive is subject to Solvency II, it enjoys the European passport and can write business directly in other member states, although it also bears the full weight of European solvency, governance and reporting rules, applied with some proportionality.

The broker Willis Towers Watson gave a comparative overview in January 2025. It counted 195 reinsurance captives in Luxembourg at the end of 2023, 65 captives in Ireland, 21 pure captives and 79 captive cells in Malta and 25 captives in Switzerland at the end of 2023. Guernsey, outside the European Union and outside Solvency II, was described as the largest European domicile overall, with 199 pure captives and 123 cells in early 2024. France introduced legislation favourable to captives in 2023.⁸

Liechtenstein occupies a position between Switzerland and the European Union. As a member of the European Economic Area, it applies Solvency II and allows its insurers to operate throughout the Area on the basis of the passport. Its supervisory framework rests on an Insurance Supervision Act and an Insurance Contract Act that resemble the neighbouring Austrian and Swiss laws. Practitioner commentary notes minimum capital of EUR 2.5 million or the equivalent in Swiss francs for non-life captives and about EUR 1.2 million for reinsurance captives. A bilateral arrangement with Switzerland allows insurers of each country to operate in the other, which gives a Liechtenstein captive a bridge into both markets.⁹ The direct insurance agreement between the two countries dates from 1996.¹⁰

The choice among these domiciles depends on the owner’s profile. A European group that wishes to write direct business in several member states will favour a Solvency II domicile. A group that uses its captive purely for reinsurance behind fronting insurers can choose more freely and may value lower costs, a flexible regulator or a local pool of managers. Switzerland’s case rests on the proximity of many large corporate headquarters, the presence of the world’s leading reinsurers and fronting insurers in Zurich, and a supervisor that the revision of 2024 has instructed to calibrate its demands to the actual risk. Its handicaps remain the absence of a European passport and costs that are high by international standards.

Notes

1. Stefan Bonda and Markus Beck (Aon Insurance Managers (Schweiz) AG), “Artikelreihe ‘Captives’ – Teil 7: Beaufsichtigung von Captives in der Schweiz”, HZ Insurance (9 June 2020), on the Federal Supreme Court’s characterisation of captives in 1988, FINMA supervision, the preference for reinsurance captives, the simplified SST model and the classification of most captives in supervisory categories 4 and 5, https://www.hzinsurance.ch/artikelreihe-captives-teil-7-or-hz-insurance/kgrk34e. ↩
2. Swiss Re Corporate Solutions, “Captive Insurance Solutions & Services”, on its captive fronting and related services for corporate clients, https://corporatesolutions.swissre.com/alternative-risk-transfer/captive-solutions.html. ↩
3. Bundesamt für Privatversicherungen (BPV), Richtlinie 17/2006 on the capital requirements of reinsurance captives (21 December 2006), on its scope, the risk-gap measure of insurance risk, the factor model for market and credit risk, concentration charges and the use of hybrid instruments or owner guarantees, https://www.finma.ch/FinmaArchiv/bpv/download/d/d%20Richtlinie%2017%202006%20Kapitalbedarf_RV_Captives.pdf. ↩
4. FINMA, “Insurance market report 2024” (3 September 2025), on the 195 insurance companies supervised at end-2024, including fifty reinsurers (twenty-three reinsurers and twenty-seven reinsurance captives, compared with twenty-four captives in 2023), and aggregate gross premiums of CHF 150.0 billion, https://www.finma.ch/en/~/media/finma/dokumente/dokumentencenter/myfinma/finma-publikationen/versicherungsbericht/20250903-versicherungsmarktbericht-2024.pdf?sc_lang=en&hash=D93D8AE6ACA365EEE2FAC6DCBB7C7970. ↩
5. FINMA, “Business with professional policyholders – regulations from 1 January 2024”, on Article 30a ISA (exemptions from tied assets, organisation fund and recovery plan), the definition by reference to Article 98a para. 2 lit. b–g ICA excluding occupational pension schemes, Articles 30b and 30c ISA, captives under Article 30d ISA and the treatment of reinsurers, https://www.finma.ch/en/supervision/insurers/professionelle-versicherungsnehmer/. ↩
6. Andrea Huber, Beat Schwarz and Catherine Hörr (Pestalozzi), “Revision of the Insurance Supervision Act – Relief, exemptions and opportunities under the new regulatory and supervisory concept” (19 November 2021), on the relief for captives under Article 30d of the draft ISA, the professional policyholder regime under Articles 30a–30c and the innovation exemption, https://pestalozzilaw.com/en/insights/news/legal-insights/revision-insurance-supervision-act-relief-exemptions-and-opportunities-under-new-regulatory-and-supervisory-concept/. ↩
7. Luxembourg for Finance, “Managing new risks with captive reinsurance”, on about 200 captive reinsurers, the law of 24 February 1984, the equalisation reserve (provision pour fluctuation de sinistralité) as a tax deferral and EUR 12 billion accumulated through it by end-2023, https://www.luxembourgforfinance.com/portfolio/managing-new-risks-with-captive-reinsurance/. ↩
8. WTW, “Understanding the changing captives landscape in Europe and how to take advantage” (28 January 2025), on 195 reinsurance captives in Luxembourg, 65 captives in Ireland, Malta’s pure captives and cells, 25 captives in Switzerland at December 2023, Guernsey’s 199 pure captives and 123 cells, and French captive legislation of 2023, https://www.wtwco.com/en-be/insights/2025/01/understanding-the-changing-captives-landscape-in-europe-and-how-to-take-advantage. ↩
9. Alexander Ospelt, Lukas-Florian Gilhofer, Vivianne Auer and Laura Bayer (Ospelt & Partner), “Insurance & Reinsurance 2026 – Liechtenstein”, Chambers Global Practice Guides, on the VersAG, VersAV, VersVG and VersVertG, the FMA, captive minimum capital, unit-linked life insurance for international private clients, the EEA passport and the recognition arrangement with Switzerland, https://practiceguides.chambers.com/practice-guides/insurance-reinsurance-2026/liechtenstein. ↩
10. Accord entre la Confédération suisse et la Principauté de Liechtenstein concernant l’assurance directe, conclu le 19 décembre 1996, approved by the Federal Assembly on 21 March 1997, in force since 9 July 1998, SR 0.961.514, text in the FINMA archive, https://www.finma.ch/FinmaArchiv/bpv/download/f/fr.pdf. ↩

For general information only. This article does not constitute legal or tax advice, does not replace advice on an individual case and creates no lawyer-client relationship. It reflects the legal position as of September 2025.