The first part of this book provided background to the concept of the principle of proportionality. It explained the meaning and relevance of the principle and, most importantly, the relation between the principle of proportionality laid down in Article 5(4) of the TEU and the insurance proportionality introduced in the Solvency II framework. Now, the focus will be shifted to insurance and reinsurance captives. In this Chapter I want to give a general background to the concept of the insurance and reinsurance captive which is essential to provide further analysis of captives’ insurance activity and to eventually examine application of insurance proportionality within the currently binding captives’ regulation. While working on the book, I have come to realize that, although captives are nothing new in the insurance industry, a lot is still unknown about them and often a wrong impression of them appears to exist amongst many stakeholders. To dispel the misconceptions, Section 4.1 will clarify what a (re-)insurance captive is, how it functions and the different types that can be distinguished. Following this, I will attempt to demonstrate that although captives pursue a (re-)insurance activity, they are significantly different from conventional insurers (Sect. 4.1.3). Building on this, I argue that it is not justified to treat captives and conventional insurers alike. To complete the picture of the captive, in Sect. 4.2, captives’ situation in the broader insurance market will be presented. Although most captives in the world have been formed by US corporations and the US is now captives’ main domicile, the focus will be on the European captives’ market, bearing in mind the subject-matter of this book.