A group captive is a licensed insurance company owned by the businesses it insures. Each member funds a layer for its own predictable losses, the members share a layer above it, and reinsurance caps the structure. The underwriting profit and investment income a commercial carrier would have kept get returned to the member-owners whose performance earned them. That is the whole idea. The detail is where it gets interesting.

What is the A fund?

The A fund is your layer. A portion of your premium funds your own expected, frequency-driven losses up to a per-claim point set by the program. Run clean and that balance becomes the raw material of your dividend. Run ugly and you spend your own fund first. This layer is where the structure literally pays you for being good at safety.

What is the B fund?

Losses above your A fund point and below the reinsurance attachment get shared across the membership. The B fund is what makes the captive insurance rather than a savings account. It is also why good captives are picky about who gets in: your fellow members’ discipline is now your financial concern, and vice versa. When someone asks why captives turn applicants away, the B fund is the answer.

Where does reinsurance come in?

Above the shared layer, the captive buys reinsurance from the commercial market, capping what any single catastrophic claim can do to the structure. A fronting carrier usually issues the actual policies, which is why your certificates and state filings look completely conventional even though the economics underneath are anything but.

When do you actually get paid?

Later than the pitch implies. Distributions follow loss development, not the calendar, because a liability claim from year one can take years to finalize. Expect your first distributions on a multi-year lag, and treat any projection that shows first-year dividends with suspicion. The symmetrical question matters just as much: read the documents for assessment provisions, meaning whether members can be required to contribute more if a layer runs over. Well-built programs structure the layers so assessments are remote. The diligence is confirming that on paper rather than in the sales meeting.

Is the math worth it?

For the right business, genuinely yes. For the wrong one, genuinely no, and we wrote a whole article about when the answer is no. The screen is premium size, loss history, safety culture, and commitment horizon, and you can run yourself through it in about three minutes with our Captive Readiness Assessment.