Captive Insurance Basics
What are the unique benefits of forming a captive insurance company
- Customized coverage specific to your business and specific risks versus a one size fits all approach.
- Greater control over underwriting and claims management
- Avoid the volatility of the cyclical insurance market.
- Access to reinsurance markets
- Strengthen the ability of your business to survive by planning for and protecting against foreseeable risks.
- Capturing lost underwriting profits
- Generate additional investment return on premium and reserve assets.
Key Consideration
If certain requirements are met, such companies may elect to pay an alternative tax based only on taxable investment income, making underwriting profits exempt from federal income tax.
What are the legitimate business reasons for establishing a captive insurance company?
- To obtain coverage where insurers are unwilling to do so
- To reduce premium payments
- To control risk
- To increase cash-flow
- To gain access to re-insurance market
- To create diversification
- To balance coverage
Regulatory Compliance Services
- Ensuring regulatory compliance in the local domicile.
- Preparation and filing of regulatory reports.
- Maintenance of records in accordance with regulatory requirements.
- Responding to regulatory examinations and inquiries.
How Captive Insurance Has Evolved
1956
Youngstown Steel forms what later became known as the first captive insurance company.
1986
Congress inserts a provision into Sec. 831 to open up a significant planning opportunity for small insurance companies. Provision is known as Sec. 831 (b)
2002
IRS starts to formulate “safe harbor” rules and clarify essential elements necessary to qualify as an insurance company.
2016
Congress changes the requirements for qualification and increased the premium limitation amount
Today
Captives in existence
0
+
Of Fortune 1000 companies have captives.
0
%
Of all property and casualty premiums come from captives
0
%
U.S. states provide domicile/numerous international domiciles
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