Why California Owners Look Outside the State
The California Insurance Code includes chapters on risk retention groups and reciprocal insurers, but no chapter that lets a business form and license a captive insurer in California. A California contractor or developer exploring a captive therefore typically looks at a domicile that licenses captives, such as Arizona, Nevada or Texas, or at a group or cell program domiciled in one of them or offshore.
The choice of domicile does not move the company's risks. Its jobsites, vehicles and employees stay in California, so California's tax and workers' compensation rules still apply at home, and owners and lenders on California projects still set the certificate and carrier requirements in their contracts.
One nearby domicile's statute is explained under Arizona captive licensing and capital rules.
California's 3 Percent Nonadmitted Insurance Tax
California's Nonadmitted Insurance Tax Law, Revenue and Taxation Code sections 13201 through 13220, imposes a tax of 3 percent of gross premiums, less 3 percent of returned premiums, on nonadmitted insurance bought by a California home-state insured. The insured files the return with the Franchise Tax Board on Form 570, and the Board's instructions describe the tax as reaching policies from insurers not authorized in California, including wholly owned subsidiaries.
The tax does not apply where a surplus line broker already pays California's tax on the placement, and premiums to a risk retention group taxed under Insurance Code section 132 are handled separately. A feasibility study for a California owner should budget the tax alongside fronting fees, captive management and the domicile's own premium tax or fees, and the owners' tax advisor should confirm how it applies to the specific structure.
Where tax and domicile choices fit in the sequence is shown in our guide to captive feasibility steps.
Workers' Compensation Stays with an Insurer or an Approved Self-Insurance Plan
Labor Code section 3700 lets a California employer secure workers' compensation in two ways: insurance from an insurer authorized to write compensation in California, or a certificate of consent to self-insure from the Director of Industrial Relations, either alone or as one employer in a group. The Office of Self-Insurance Plans oversees self-insurance and lists private, industry-specific group self-insurers that operate in California today.
A captive domiciled elsewhere does not, by itself, satisfy section 3700. Where a captive takes part in a California comp program, it typically does so behind an authorized insurer or in support of an approved self-insurance plan, and that structure needs to be confirmed with the insurer, the program and counsel before any change is made.
Licensing and comp rules that apply to every GC are covered in California general contractor insurance requirements.
CSLB Filings and Contract Certificates
Business and Professions Code section 7125 requires a CSLB licensee to keep on file either a certificate of workers' compensation insurance from an insurer licensed in California or a certification of self-insurance. A captive arrangement has to leave that filing intact.
Liability and auto certificates raise a similar question. Many public owners, developers and lenders in California require an admitted carrier with a stated rating, primary and noncontributory wording or particular additional insured endorsements. A fronted captive program can often meet those terms through the fronting insurer, but the exhibits should be checked before a structure is chosen.
What California owners typically ask for is described under commercial construction insurance exhibits.
Risk Retention Groups in California
California treats risk retention groups under two sections. Insurance Code section 131 requires a risk retention group licensed in California to be organized under California law and licensed as a liability insurer under the full admitted-insurer rules. Under section 132, a group chartered in another state files notice with the Commissioner before doing business here and pays premium taxes on the same basis as a foreign admitted insurer.
Because risk retention groups write liability only, they can be one option for a contractor association's general liability but not for property or workers' compensation.
California Firms That Typically Study a Captive
In California, captive studies tend to come from commercial and civil contractors with large, steady general liability and auto programs, developers with portfolios of income properties and contractors that already self-insure part of their risk through high deductibles. Firms whose main exposure is for-sale residential work often find that project-specific or wrap programs fit the long completed-operations tail better, though a captive can sit alongside them.
For the structures and who they fit, see our overview of captive programs for construction firms.
Before You Ask for a Quote
What to Gather
- Loss runs for GL, auto and workers' compensation for five or more years
- Your current CSLB workers' compensation filing
- Owner, developer and lender insurance exhibits for current California work
- Financial statements and the ownership chart
- Any self-insured retention or large-deductible agreements in force
What to Ask the Insurer or Surety
- Where would the captive be domiciled, and why there?
- How will the 3 percent nonadmitted tax apply to our structure, and who files it?
- How will workers' compensation be secured under Labor Code section 3700?
- Can the fronting insurer meet our contracts' rating and endorsement terms?
- What are the capital, collateral and exit terms?
Quick Answer
California does not license captives under its Insurance Code, so California owners typically use a captive domiciled elsewhere. The home-state insured may owe a 3 percent nonadmitted insurance tax, and workers' compensation still needs an authorized insurer or a certificate to self-insure.
Common Mistake
Budgeting a captive without California's nonadmitted insurance tax, or assuming the captive can replace the workers' compensation filing the CSLB requires.
Broker Perspective
For California owners we confirm the comp path and the contract certificates first, because those usually decide which lines can move into a captive before cost is even compared.
Coverage Impact
Coverage under a fronted captive program depends on the fronting insurer's policy forms and endorsements; the captive changes who funds retained losses, not what the forms say.
The Same Requirement in Other States
Questions Buyers Ask
Can we form a captive in California?
California's Insurance Code has no chapter for forming captive insurers, so California owners typically form or join a captive in another domicile. A risk retention group can be organized in California, but it must be licensed as a liability insurer under the admitted-insurer rules.
Who pays California's nonadmitted insurance tax on a captive?
Under Revenue and Taxation Code section 13210, the California home-state insured that buys the nonadmitted coverage pays 3 percent of gross premiums and files with the Franchise Tax Board, unless a surplus line broker already pays the tax on the placement.
Can a captive take over our California workers' compensation?
Not by itself. Labor Code section 3700 recognizes an authorized insurer or a certificate of consent to self-insure. A captive may support an approved program in some structures, which should be confirmed with the insurer and counsel.
Will a captive change what we file with the CSLB?
It should not. Business and Professions Code section 7125 still requires a workers' compensation certificate from a California-licensed insurer or a self-insurance certification on file.
Official Sources
- California Insurance Code, table of contents, California Legislative Information. The Insurance Code has no chapter for forming captive insurers; its nearest chapters cover risk retention groups and reciprocal insurers. Verified 2026-10-25.
- California Revenue and Taxation Code sections 13201-13220 (Nonadmitted Insurance Tax Law), California Legislative Information. A California home-state insured that buys nonadmitted insurance pays a 3 percent tax on gross premiums and files a return with the Franchise Tax Board. Verified 2026-10-25.
- Form 570, Nonadmitted Insurance Tax Return, instructions, California Franchise Tax Board. The tax reaches policies from insurers not authorized in California, including wholly owned subsidiaries, at 3 percent. Verified 2026-10-25.
- California Labor Code section 3700 (securing workers' compensation), California Legislative Information. An employer secures compensation through an insurer authorized to write it in California or a certificate of consent to self-insure, alone or as one employer in a group. Verified 2026-10-25.
- Office of Self-Insurance Plans: application requirements, California Department of Industrial Relations. OSIP oversees workers' compensation self-insurance and lists private industry-specific group self-insurers operating in California. Verified 2026-10-25.
- California Business and Professions Code section 7125 (workers' compensation on file with the CSLB), California Legislative Information. A licensee keeps on file a certificate from an insurer licensed in California or a certification of self-insurance from the Director of Industrial Relations. Verified 2026-10-25.
- California Insurance Code section 131 (risk retention groups licensed in California), California Legislative Information. A risk retention group licensed in California must be organized under California law and licensed as a liability insurer under the admitted-insurer rules. Verified 2026-10-25.
- California Insurance Code section 132 (risk retention groups chartered in another state), California Legislative Information. An out-of-state risk retention group files notice with the Commissioner at least 60 days before doing business in California and pays premium taxes like a foreign admitted insurer. Verified 2026-10-25.
Reviewed by the Principal, Gleason Insurance Brokers, LLCUpdated
