Captive Insurance Arrangements: Key Points to Remember
A captive insurance arrangement involves a company creating its own insurance entity (the “captive”) to insure its risks. This is an alternative to traditional insurance, often used to gain more control over risk management and insurance costs. Mark E. Snapp & Associates provides captive insurance arrangement in Beckley, Charleton, WV, Huntington, WV, Morgantown, Palm Beach, FL, Parkersburg and surrounding areas.
Types of Captives:
Pure Captive: Insures only the parent company and its subsidiaries.
Group Captive: Shared by multiple companies, often in the same industry.
Rent-a-Captive: A company “rents” an established captive’s infrastructure.
Benefits:
Cost Savings: Reduces reliance on commercial insurers, avoiding high premiums and administrative costs.
Customization: Tailored coverage for unique risks not easily insurable in the traditional market.
Risk Control: Encourages better risk management practices.
Profit Retention: Allows businesses to retain underwriting profits and investment income.
Considerations:
Initial Capital: Requires substantial upfront capital to establish.
Regulatory Compliance: Must comply with insurance regulations in the domicile jurisdiction.
Operational Complexity: Involves ongoing management, including underwriting, claims handling, and reporting.
Risk Concentration: Over-reliance on the captive may expose the company to significant financial risks.
Domicile Selection:
Choose a domicile (jurisdiction) based on factors like regulatory environment, tax advantages, and operational ease. Popular domiciles include Bermuda, the Cayman Islands, and Vermont (U.S.).
Tax Implications:
Captive arrangements may offer tax benefits if structured correctly. However, compliance with IRS or local tax authority rules is critical to avoid penalties.
Exit Strategy:
Plan for future scenarios, such as liquidation or sale of the captive, to ensure the arrangement remains beneficial over time.
Professional Guidance:
Engaging experienced advisors is essential for feasibility studies, structuring, and ongoing management.
By carefully weighing these factors, businesses can determine if a captive insurance arrangement aligns with their risk management and financial objectives.
If you need assistance, we’re just a phone call away.