insurance company? A captive is a subsidiary of another company, which is called its parent.

The captive, as originally thought up by several Bermudian businessmen and Fred Reiss, an American, is an insurance company with only one client its parent. The captive issues insurance policies to its parent, and charges premiums in the usual way.

Some captives, in addition to providing insurance for the parent, offer insurance to other non-connected companies. Some captives don't have a parent -- ACE and Exel are good examples. They only provide insurance for non-connected companies, like a non-captive insurance company does. Because they are owned by several companies, they are called Association Captives.

Why are they called captives? Most insurance companies have to find customers. A captive already has one; its parent. So it's like a captive audience: the parent company does all its insurance business, at least certain kinds of insurance, with its subsidiary.

Are all captives the same? No. So-called "pure'' captives have one customer, the parent. Association companies have several customers, the shareholders who formed it. Some captives are known as "rent-a-captives''. These are owned by a company not connected to the parent, but provide insurance to the parent as if they were.

How many captives are there world-wide? More than 3,000, at the last count. A little more than ten percent of them are Bermuda companies, making the Island the world's Number One captive jurisdiction. Bermuda has always had the lead in the captive industry, and has held its share of the market ever since the first captive was formed in the 1960s.