What is the limitation of a pure captive insurance company?

A pure captive insurance company is specifically designed to insure the risks of its parent company and its affiliates. This tailored structure allows the business to manage its insurance needs more effectively and can lead to cost savings. The limitation here is that the captive can only write insurance for its parent and affiliated organizations, rather than the broader market. This is significant because it restricts the scope of coverage and the risk management strategies to just the affiliated entities, which is a fundamental characteristic of pure captives.

Understanding this limitation is crucial for businesses considering forming a captive, as it determines the captive's ability to diversify its risk across different industries or clientele. The other options may suggest broader capabilities of insurance coverage, which do not apply to the structure and regulatory framework governing pure captive insurance companies.