What does a special purpose captive insurance company insure?

A special purpose captive insurance company is specifically designed to insure the risks of its parent company under defined conditions. This structure allows companies to manage their own risk by providing insurance tailored to their unique exposures, which might not be adequately covered by conventional insurance markets.

In this context, these insurance companies can focus on specific risk attributes or projects that align closely with their parent organization’s business model. This could include innovative financial solutions or addressing niche market needs that traditional insurers may overlook. The ability to focus on the parent’s risks and meet their unique requirements is a fundamental aspect of the operation of a special purpose captive.

The other options present scenarios that don’t accurately reflect the operational framework of special purpose captive insurance. Such a company wouldn’t typically insure only third-party risks or an unlimited variety of insurance types, as that goes against the specialization purpose. Additionally, insuring risks from multiple parent companies is inconsistent with the nature of a special purpose captive, which is primarily structured around a single parent to address specific risk management needs.