What is the primary purpose of a captive insurance company?

The primary purpose of a captive insurance company is to finance risks. Captive insurance companies are set up by a parent organization to provide coverage for its own risks, allowing the organization to retain some of its risk rather than transferring it entirely to a traditional insurer. By doing this, the parent company can tailor its insurance coverage to better fit its specific needs, often resulting in cost savings and increased flexibility in managing risks.

Captive insurance also provides the opportunity to accumulate reserves, which can be used to cover claims, thereby strengthening the parent company's financial control over risk management. This model is particularly beneficial for organizations with unique or hard-to-insure risks, as it enables them to create a customized risk management vehicle that aligns with their operational objectives and financial strategies.

The other options indicate different functions that are not the primary focus of a captive insurance company. Managing employee health benefits might be part of a broader benefits strategy, investing in real estate is more aligned with investment companies, and selling insurance to the public is a characteristic of traditional insurance carriers rather than captives, which do not typically engage in public insurance sales.