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- A captive may not be considered a legal insurance company by the IRS and may face consequences if it fails to underwrite coverage properly, charges excess premiums without justification, and shares limited or no risk with third parties through reinsurance.
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A captive may not be considered a legal insurance company by the IRS and may face consequences if it fails to underwrite coverage properly, charges excess premiums without...
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- What Is A Captive Insurance Company?
- Understanding A Captive Insurance Company
- Tax Issues of Captive Insurance Companies
- Pros and Cons of Captive Insurance
- Examples of Captive Insurance Companies
- The Bottom Line
A captive insurance company is a wholly-owned subsidiary insurer formed to provide risk mitigation services for its parent companyor related entities. Companies form “captives” for various reasons, such as when: 1. The parent company cannot find a suitable outside firm to insure it against particular business risks 2. The premiumspaid to the captiv...
A captive insurance company is a form of corporate self-insurance. While there are financial benefits to creating a separate entity to provide insurance services, parent companies must consider the associated administrative and overhead costs, such as additional personnel and startup costs. There are also complex compliance issues to consider. As a...
The tax concept of a captive insurance company is relatively simple. The parent company pays insurance premiums to its captive insurance company and seeks to deduct these premiums in its home country, often a high-tax jurisdiction. Today, several U.S. states allow the formation of captive companies. Protection from tax assessmentis a sought-after b...
Captives can be an attractive option for companies looking for ways to manage and distribute risk, but there are advantages and disadvantages.
A well-known captive insurance company made headlines in the wake of the 2010 British Petroleum oil spill in the Gulf of Mexico. At that time, reports circulated that BP was self-insured by Guernsey, U.K.-based captive insurance company Jupiter Insurance, and that BP could receive as much as $700 million in coverage from losses. British Petroleum i...
Insurance is a significant expense for large companies. Captive insurance companies offer a way for companies to control costs, reap tax benefits, and cover risks that commercial insurance companies might be unable or unwilling to insure. While setting up a captive can be challenging, third-party captive professionals can help companies navigate th...
- Julia Kagan
Aug 1, 2019 · Captives are, in essence, a formalized system of self-insurance bestowed with certain tax benefits. Not surprisingly then, they face constant scrutiny from the IRS and must navigate numerous state regulatory hurdles.
Jul 1, 2021 · To be very clear, the purpose of an insurance company and, therefore, a captive is to pay losses (your own losses) and to afford you (the owner) more control over your risk and any losses that do occur. Put another way, captives are an alternative risk transfer mechanism used to finance risk.
Nov 16, 2018 · The strict definition of a captive is an insurance vehicle that is owned by its policyholder (s). Many of the world's captives do not satisfy the IRS definitions but remain captives because of the role they fulfill for their parent companies.
What is a Captive Insurance Company? A captive insurance company is a C-Corporation (or a legal entity taxed as a C-Corporation) created for the purpose of writing property and casualty insurance to a relatively small group of insureds.
A "captive insurer" is generally defined as an insurance company that is wholly owned and controlled by its insureds; its primary purpose is to insure the risks of its owners, and its insureds benefit from the captive insurer's underwriting profits.
