Can the State of Oklahoma or one of its political subdivisions (counties, cities, school districts) form and own a captive insurance company to self-insure against its own risks, without violating the Oklahoma Constitution's bans on state ownership of private companies?

Plain-English summary

Insurance Commissioner Glen Mulready and Representative Jason Blair asked the AG whether Oklahoma's Constitution allows the State and its political subdivisions (counties, cities, school districts) to own "captive insurance companies."

A captive insurance company is a wholly-owned subsidiary that exists only to insure the parent's own risks. Big corporations have used them for decades. Several states (Arkansas, Illinois, Iowa) explicitly authorize their state and local governments to use them too. Oklahoma's Captive Insurance Company Act, 36 O.S. §§ 6470.1 through 6470.35, regulates captives in the state.

The constitutional question arose because article X, section 15 says the State "shall not become an owner or stockholder in, nor make a donation by gift, subscription to stock, by tax, or otherwise, to any company, association, or corporation," and section 17 imposes a parallel ban on political subdivisions.

Attorney General Drummond's answer: those provisions don't bar a public body from owning a captive insurer that exists only to insure that public body's own risks. The point of sections 15 and 17 is to "prevent the investment of public funds in private enterprises." A wholly state-owned captive does not divert public funds to a private interest; it manages public risk with public funds.

The AG's reasoning leans on Lawrence v. Schellstede, 1960 OK 10, where the Oklahoma Supreme Court held that mere membership in a mutual insurance company by the City of Tulsa did not violate section 17. The Court refused to "unduly extend[] the scope of the constitutional limitation" to disallow standard public business that does not risk public funds being used for private benefit. The AG read that as fitting the captive insurance situation.

The opinion comes with three significant caveats:

1. Avoid private-interest entanglement. Captive structures can include private parties (e.g., affiliates, reinsurers, joint-venture partners). If a public-entity captive includes private interests, sections 15 and 17 may apply. AGs in Ohio (2021), Nebraska (1994), and Mississippi (1987) reached opposite conclusions when private parties were involved. The State must "carefully structure" the captive to avoid this.

2. State-credit concerns for subdivision captives. If the State's credit is used to facilitate a political subdivision's captive insurer, that may independently violate section 15(A), which bars State credit from flowing to political subdivisions. In re Okla. Capital Improvement Authority and Reherman v. Oklahoma Water Resources Board are flagged as examples of section 15 violations in similar State-subdivision financing contexts.

3. Statutory trusts are different. The opinion notes (footnote 3) that statutory trusts under 60 O.S. § 176 present different constitutional questions than corporations or LLCs and may already be authorized for self-insurance functions through public trusts.

The opinion does not approve any specific transaction. It addresses the constitutional framework. Implementing legislation or regulations would still need careful structuring.

What this means for you

If you are at the Oklahoma Insurance Department or OMES

You have constitutional cover for a State-owned captive insurer to manage State risk. The next step is operational: which agency forms the captive, what entity form (corporation, LLC, statutory trust per 60 O.S. § 176), what risks it insures, and how OMES's existing risk management program under 74 O.S. § 85.58A integrates with it. Coordinate with the Insurance Commissioner on licensing under 36 O.S. § 6470.3.

If you contemplate a captive that also covers political subdivisions or quasi-public entities, build the structure to avoid private-interest entanglement and to avoid using State credit to benefit a particular subdivision (which would raise section 15(A) issues).

If you are a county, city, or school district risk manager

The opinion confirms that your political subdivision can own a captive insurer to manage its own risks. The Schellstede precedent already allowed mutual-insurance memberships; this opinion extends to wholly-owned captives. Talk to your governing body, your insurance broker, and the Insurance Department about whether a captive makes sense given your risk profile.

If your subdivision wants to participate in a multi-jurisdiction captive (e.g., several counties pooling risk), the structure has to ensure no private interests benefit. Multi-public captives (with only public-entity owners) appear permissible under the opinion's logic, but consult counsel.

If you advise the Oklahoma Legislature

Several states have enacted explicit authorizing legislation (Ark. Code Ann. § 19-3-506; 215 Ill. Comp. Stat. 5/123C-1; Iowa Code § 521J.1(31)). The AG opinion suggests Oklahoma can proceed under existing statutes, but explicit legislation would:

• Provide clarity for the Insurance Department's licensing decisions.
• Set guardrails on private-interest entanglement.
• Address the State-credit-to-subdivision question raised in footnote 5.
• Specify which entity forms (corporation, LLC, statutory trust) are appropriate.

Without legislation, public entities may proceed but should expect substantial transactional negotiation and possible litigation if the structure is novel.

If you are a captive insurance attorney advising public clients

Three structural considerations dominate after this opinion:

1. Wholly public ownership. No private parties as direct or indirect owners. This addresses the AG's opinion-paragraph caveat about private-interest entanglement.
2. No reverse flow of public benefit to private entities. Reinsurance and fronting arrangements that ultimately route value to private parties may bring section 15/17 issues back. Use reinsurers carefully; consider Bermuda-domiciled or other neutral structures.
3. Capital structure. Initial capitalization with public funds is allowed; ongoing premium flows are also allowed. State-credit-pledge arrangements to backstop a subdivision's captive (e.g., State guaranty of subdivision premium obligations) may violate section 15(A).

Statutory trust under 60 O.S. § 176 is a worth-considering alternative entity form, since it sidesteps the section 15/17 entity-list issues and has been used for public self-insurance functions.

If you are a private insurance broker working with public clients

A captive insurer is a competing risk-management option. It does not eliminate the need for traditional insurance for tail risks, reinsurance, or specialized coverages, but it can reduce premium volatility and capture underwriting profits. Be prepared for clients (especially larger counties, cities, and school districts) to evaluate this option.

If you are an Oklahoma legislator

The opinion provides the constitutional foundation. Statutory authorization would make the framework cleaner. Items worth considering in any authorizing bill:

• Express authorization for State and political-subdivision captives.
• Permitted entity forms (corporation, LLC, statutory trust).
• Restrictions on private-interest participation.
• Treatment of State financial backing for subdivision captives.
• Specific application of the Insurance Code (or carveouts).
• Public records and audit provisions.

Common questions

Q: What is a captive insurance company?
A: A captive is a subsidiary corporation or association organized solely to write insurance for its parent and related entities. It does not sell to the general public. Big corporations have used captives for decades to control insurance costs, capture underwriting profit, and access reinsurance markets.

Q: How does it differ from self-insurance?
A: Self-insurance is a balance-sheet decision: the entity sets aside reserves and pays losses directly. A captive is a separately formed insurance company that issues policies, follows insurance regulation, and pays losses through standard insurance mechanisms. The end result is similar (the parent absorbs the risk economically), but the captive structure provides better tax treatment, claims-handling discipline, and reinsurance access.

Q: Can a county form a captive to insure its own assets and liabilities?
A: Per this opinion, yes, as long as the captive is wholly owned by the county and exists only to insure the county's risks. The structure should avoid private-interest participation.

Q: What about a school district?
A: Same answer. The opinion explicitly notes that school districts are "incorporated districts" subject to article X, section 17, and the same captive-insurance analysis applies.

Q: Can multiple political subdivisions pool risks in one captive?
A: The opinion does not directly address this, but multi-public captives (with only public-entity owners) are consistent with the opinion's logic. The risk is private-interest entanglement; if all owners are public bodies, that risk is mitigated.

Q: What if the captive uses private reinsurers?
A: Reinsurance is normal industry practice. A captive paying premiums to a private reinsurer, in exchange for risk transfer, is not the same as gifting public funds to a private entity. But carefully review any structure that might channel value back to private parties beyond fair-market reinsurance pricing.

Q: Does this require new legislation?
A: The opinion suggests existing statutes (Captive Insurance Company Act, Insurance Code) plus the constitutional analysis allow public-entity captives. Explicit legislation would clarify and could remove transactional friction, but is not strictly required.

Q: Are there other constitutional provisions to worry about?
A: The opinion expressly notes it addressed only article X, sections 15 and 17 as raised by the questioners. Other provisions (e.g., debt limitations, public-purpose doctrines) may apply depending on the specific structure.

Q: Is this opinion binding on the Insurance Department?
A: AG opinions are binding on state officials affected by them under 74 O.S. § 18b. The Insurance Commissioner is bound to follow this analysis when reviewing license applications under the Captive Insurance Company Act.

Background and statutory framework

The constitutional framework comes from the post-Civil War concern that state and local governments would buy stock in railroads, banks, and other private enterprises as boosterism, with the public footing the bill when those investments soured. Articles X, sections 15 and 17 were drafted to prevent that. The Oklahoma Supreme Court has repeatedly described them as targeted at "the grosser forms of raids on public money."

But strict literal application would also bar everyday public business: government insurance, banking relationships, vendor contracts. Oklahoma courts have read the provisions narrowly, focused on their purpose. Veterans of Foreign Wars v. Childers (1946), Hawks v. Bland (1932), and Lawrence v. Schellstede (1960) all rejected applications that would have over-extended sections 15 and 17.

The captive insurance question fits this purposive reading. Public funds going into a wholly-public captive that insures only the parent's risk are not flowing to private interests; they are remaining in the public risk-management system. Schellstede's holding that "[m]ere membership in a mutual insurance company does not offend the constitutional limitation unless such membership would constitute a stockholder or create a liability or obligation not present in the case at bar" maps cleanly to wholly-owned public captives.

Title 36's Captive Insurance Company Act sets up the regulatory framework: licensing through the Insurance Commissioner, organizational documents, financial-condition evidence, feasibility studies, business plans, annual reporting, and regulatory examinations. The Act recognizes seven types of captive insurers based on business structure (36 O.S. § 6470.2). Public-entity captives fit within these existing categories.

The opinion contains an interesting reference to Tulsa Stockyards, Inc. v. Clark, 2014 OK 14. That case dealt with the conversion of CompSource Oklahoma (a state-run worker's compensation insurer) into a private mutual. The Oklahoma Supreme Court treated the State's prior operation of a private-style insurance business as already-authorized: "the state may engage in private insurance business for a public purpose." If the State could run CompSource as essentially a private workers' comp insurer, the AG argued, the State can certainly own a captive insurer to manage its own risk.

Citations and references

Constitutional provisions:
- Okla. Const. art. X, § 15 (State credit and ownership prohibition)
- Okla. Const. art. X, § 17 (Political subdivision parallel)

Statutes:
- 36 O.S. §§ 6470.1 to 6470.35 (Oklahoma Captive Insurance Company Act)
- 60 O.S. § 176 (Public trusts)
- 74 O.S. § 85.58A (OMES risk management)

Cases:
- Lawrence v. Schellstede, 1960 OK 10, 348 P.2d 1078
- Tulsa Stockyards, Inc. v. Clark, 2014 OK 14, 321 P.3d 185
- In re Okla. Dev. Fin. Auth., 2004 OK 26, 89 P.3d 1075
- In re Okla. Cap. Improvement Auth., 2012 OK 99, 289 P.3d 1277

Other state AG opinions (cited as cautionary contrasts):
- Ohio Op. Atty. Gen. No. 2021-24 (2021)
- Neb. Op. Atty. Gen. No. 94045 (1994)
- Miss. A.G. Opin., 1987 WL 121805 (1987)

Source

• Landing page: https://oklahoma.gov/oag/opinions/ag-opinions/2025/18.html
• Original PDF: https://oklahoma.gov/content/dam/ok/en/oag/opinions/ag-opinions/2025/AG%20Opinion%202025-18.pdf

Original opinion text

GENTNER DRUMMOND
ATTORNEY GENERAL
ATTORNEY GENERAL OPINION
2025-18

The Honorable Glen Mulready
Insurance Commissioner
Oklahoma Insurance Department
400 N.E. 50th St.
Oklahoma City, OK 73105

December 16, 2025

The Honorable Jason Blair
Oklahoma House of Representatives, District 53
2300 N. Lincoln Blvd., Rm. 546
Oklahoma City, OK 73105

Dear Commissioner Mulready and Representative Blair:

This office has received your request for an Attorney General Opinion in which you ask, in effect, the following questions:

1. Does article X, section 15 of the Oklahoma Constitution prohibit the State of Oklahoma from creating and owning a captive insurance company, as the term is used in the Oklahoma Captive Insurance Company Act, 36 O.S.2021 & Supp.2022, §§ 6470.1 to 6470.35?

2. Does article X, section 17 of the Oklahoma Constitution prohibit the Legislature from enacting laws to permit a political subdivision of the State of Oklahoma to create and own a captive insurance company, as the term is used in the Oklahoma Captive Insurance Company Act, 36 O.S.2021 & Supp.2022, §§ 6470.1 to 6470.35?

I. SUMMARY

The answer to both questions is no. While sections 15 and 17 of Article X of the Oklahoma Constitution prohibit the State and its political subdivisions from owning a "company, association, or corporation," this prohibition is intended to prevent public aid to or investment in private entities. A captive insurance company wholly owned by the State or a political subdivision, and existing only to insure against that body's risk exposure, does not implicate these concerns. However, this Opinion is subject to the caveats set forth in Section III, infra.

II. BACKGROUND

A general definition of "captive insurance company" is as follows: "A 'captive insurance company' is a risk-financing method or form of self-insurance involving the establishment of a subsidiary corporation or association organized to write insurance. Captive insurance companies operate just like ordinary insurers in nearly every respect, however, their distinguishing feature is that they may only cover the risks of their parent companies and related entities."

Utilizing a captive insurance company "can bring tax, economic, and commercial benefits including access to reinsurance markets," while at the same time providing a means "to insure risks that are otherwise difficult to insure on the traditional insurance market."

Oklahoma is one of several states that license and regulate captive insurers. The Oklahoma Captive Insurance Company Act ("Act") requires captive insurance companies seeking to do business in Oklahoma to obtain a license from the Insurance Commissioner ("Commissioner") and maintain a registered office and agent in Oklahoma. 36 O.S.Supp.2022, § 6470.3(B). To obtain a license, a captive insurer must file with the Commissioner, among other things, its organizational documents, evidence of its financial condition, a feasibility study, and a business plan. Once licensed, that captive insurer is subject to oversight by the Commissioner, including annual reporting and regulatory examination.

In your request, you state that public bodies, both state entities and political subdivisions, have increasingly considered forming their own captive insurance companies as an alternative to the private insurance market or other providers. Indeed, several states have enacted statutes specifically allowing the state or its political subdivisions to do exactly that. To determine whether Oklahoma can do the same, you have asked whether certain provisions of the Oklahoma Constitution prohibit the State or its political subdivisions from owning a captive insurance company.

III. DISCUSSION

Before turning to this question, it is important to understand what this Opinion does not address. First, you advised that this Opinion may inform proposed legislation to specifically allow the State or a political subdivision to form and own a captive insurance company. However, this office has not reviewed or provided input on any draft bills. Second, this Opinion does not address whether any other statutory or constitutional provisions bear upon the question of a State or a political subdivision forming and owning a captive insurance company. Only the provisions you asked this office to consider are addressed in this Opinion. And third, this Opinion does not reach the question of whether any particular entity form, e.g., stock or nonstock corporation, LLC, or similar, would be more or less appropriate to serve as a captive insurance company for the State or a political subdivision.

Turning now to the constitutional provisions referenced in your request, article X, section 15 of the Oklahoma Constitution provides, in pertinent part, as follows:

[T]he credit of the State shall not be given, pledged, or loaned to any individual, company, corporation, or association, municipality, or political subdivision of the State, nor shall the State become an owner or stockholder in, nor make a donation by gift, subscription to stock, by tax, or otherwise, to any company, association, or corporation.

Similarly, article X, section 17 prohibits the Legislature from "authoriz[ing] any county or subdivision thereof, city, town, or incorporated district, to become a stockholder in any company, association, or corporation, or to obtain or appropriate money for, or levy any tax for, or to loan its credit to any corporation, association, or individual." These are simply two versions of the same prohibition: section 15 applies against the State, and section 17 against political subdivisions. Together, they operate to "prevent[] the investment of public funds in private enterprises."

At first blush, these provisions might seem to prohibit the State and its political subdivisions from owning, investing in, or otherwise contributing funds to any "company, association, or corporation" for any purpose. However, constitutional provisions "must be construed as a consistent whole in harmony with common sense and reason." Despite the broad language, courts have long interpreted these provisions to limit only the ability to redirect public funds to private entities by way of gift or direct investment.

The formation and ownership of a captive insurance company by the State or a political subdivision does not, by itself, implicate these concerns. The purpose of a captive insurance company is to provide insurance coverage to its parent, and perhaps related entities. If the only parent is the State or a political subdivision, no public funds would be used for the benefit of a private entity. Rather, the public funds invested in or otherwise directed to the captive insurance company would be used in furtherance of insuring risk faced by the State or the political subdivision that owns it.

This conclusion is also consistent with the Oklahoma Supreme Court's decision in Lawrence v. Schellstede, 1960 OK 10, 348 P.2d 1078. In that case, it was alleged that a City of Tulsa insurance policy violated article X, section 17 because the provider was a mutual insurer whose policy stated that each insured "become[s] a member and owner of this mutual insurance corporation." After reviewing the purpose of article X, section 17, the terms of the policy, and persuasive authority from other states, the court concluded that, notwithstanding the policy's terms, "[m]ere membership in a mutual insurance company does not offend the constitutional limitation unless such membership would constitute a stockholder or create a liability or obligation not present in the case at bar." To hold otherwise, according to the court, would "unduly extend[] the scope of the constitutional limitation," to disallow standard business of a public entity that does not risk its funds being used to benefit private interests.

The court's reasoning in Schellstede applies equally here. If the State or a political subdivision forms and owns a captive insurance company solely to manage its own risk, that does not, by itself, present an opportunity for public funds to be used to fund private interests. Of course, captive insurance structures can be complicated, and Attorneys General in other states have concluded that public entity participation in captive insurance programs violated their states' analogous constitutional provisions where the captive insurer was a private company or included private interests. Accordingly, the State and political subdivisions must carefully structure a public entity captive insurer in a way that avoids participation by or entanglement with private interests.

Finally, it is worth mentioning that state or local involvement in the insurance business would not be a new development. Both the State and its political subdivisions are given broad authority to procure insurance to mitigate risk. Further, beginning in the 1930s, the State operated essentially as a private insurer providing worker's compensation insurance for public and private employers. Indeed, the Oklahoma Supreme Court and the parties in Tulsa Stockyards seemed to accept without dispute "that the state may engage in private insurance business for a public purpose." This history supports the conclusion that article X, section 15 does not bar the State, and by similar logic, article X, section 17 does not bar political subdivisions, from insuring their own risk through the formation and ownership of a captive insurance company.

It is, therefore, the official Opinion of the Attorney General that:

1. Article X, Section 15 of the Oklahoma Constitution does not prohibit the State of Oklahoma from creating and owning a captive insurance company, as the term is used in the Oklahoma Captive Insurance Company Act, 36 O.S.2021 & Supp.2022, §§ 6470.1 to 6470.35.

2. Article X, Section 17 of the Oklahoma Constitution does not prohibit the Legislature from enacting laws to permit a political subdivision of the State of Oklahoma to create and own a captive insurance company, as the term is used in the Oklahoma Captive Insurance Company Act, 36 O.S.2021 & Supp.2022, §§ 6470.1 to 6470.35.

GENTNER DRUMMOND
ATTORNEY GENERAL OF OKLAHOMA

ETHAN SHANER
DEPUTY GENERAL COUNSEL