Captive Insurance - Origin of Term

Origin of Term

The term "captive" was coined by the "father of captive insurance," Frederic M. Reiss, while he was bringing his concept into practice for his first client, the Youngstown Sheet & Tube Company, in Ohio in the 1950s. The company had a series of mining operations, and its management referred to the mines whose output was put solely to the corporation's use as captive mines. When Reiss helped the company incorporate its own insurance subsidiaries, they were referred to as captive insurance companies because they wrote insurance exclusively for the captive mines. Reiss continued to use the term: the policyholder owns the insurance company i.e. the insurer is captive to the policyholder. If the captive insures only its parent and affiliates it is called a pure captive. If it insures just one type of industry (e.g. energy industries) it is called a homogeneous captive. A captive insurance company can also insure a group of diverse companies; this is called a heterogeneous captive. The captive insurance industry is believed to have started when ship owners met at Lloyd's coffee shop in London and agreed to share in the risks of their shipping fleet losses.