The Affluence Group does not offer captive insurance management services. We recognize the importance and potential benefits of utilizing a captive insurance arrangement to complement your risk management needs and are happy to refer you to a dedicated team established for the purpose of counseling and facilitating compliant captive arrangements.
A Captive Insurance company (Captive) is a property and casualty insurance company established to provide coverage primarily for a parent company. In many cases, the owner of the parent company is also the owner of the Captive; however, the arrangement may be alternatively structured so the Captive is owned by another person, entity, or trust.
The Captive insurance company may be established to provide unique coverage or coverage not available through commercial property and casualty insurance companies. Or, the arrangement may be implemented in order to allow the Captive owner to capture overhead, profit and other capital which would normally transfer to another insurance carrier. Once the desired insurance risks have been identified, an independent actuarial company will be retained to determine an appropriate premium for the risks assumed by the Captive, which will in turn issue insurance policies for those risks.
Premium payments made by the parent company to the Captive insurance company for traditional property and casualty insurance coverage have historically been tax-deductible as ordinary and necessary business expenses, just as they would be treated had they been made to a traditional insurance company. Additionally, the Captive may elect to receive favorable income tax treatment if it meets qualification requirements required under the PATH Act. Qualification includes attractive recognition of premium income and underwriting profits as tax-exempt, providing that premiums received do not exceed $2.4M annually in 2022.
After adjustment for expenses and claim payments, net underwriting profits are retained within the Captive insurance company. Over the years, profits and surplus may accumulate to sizeable amounts, and may be distributed to the owner(s) of the Captive Company, under favorable long-term capital gains rules. Amounts set aside as reserves for potential claims payments, plus capital surplus, may be invested in a prudent manner subject to an investment plan filed with the regulators in your domicile. A prudent investment plan will likely prohibit the use of life insurance cash value as an available asset class of the captive. Naturally, the formation of your Captive insurance company and eventual issuance of a certificate of authorization to do business, are subject to approval by the insurance regulators in the jurisdiction where the insurance Captive is formed. The insurance regulators will also oversee the ongoing operation of the Captive to assure ongoing compliance with the rules for that jurisdiction.
A properly designed Captive insurance arrangement can provide significant protection to meet your risk management goals and objectives. By coordinating your planning with legal and tax counsel, alternative ownership options of the Captive can provide additional efficient secondary planning benefits. Your dedicated captive insurance management team will work along with your legal and tax advisors, risk managers, actuaries, captive management company and insurance regulators, to help ensure that your Captive arrangement is compliant and meets all requirements for successful implementation.