Captive Utilization And Value



Funding long tail retained risk such as Workers Compensation, General Liability, and Auto Liability has several advantages including:

  • Captive insurance premiums are treated as tax-deductible when structured properly.
  • Tax deductibility of US captive insurance premium and the deductibility of loss reserves at the captive insurance level: Contingent upon the ability to treat the captive as an insurance company for US federal tax purposes.
  • Enhanced Risk Management: Captive insurance funding allows for a more structured and controlled approach to managing and financing retained risks. Proactive risk mitigation efforts can be funded and executed directly through the captive insurance company, improving safety and reducing claim frequency.
  • Stable Cash Flow: Captive insurance companies provide a steady stream of funding to cover ongoing claims, ensuring stability in cash flow for long-tail liabilities. Predictable funding enables the captive insurance company to plan and manage financial resources effectively.
  • Long-Term Cost Control: Captive insurance funding helps stabilize costs over time by spreading them across multiple policy periods. This stability can shield the organization from market fluctuations and provide better cost predictability.

  • Investment Opportunities: Captive insurance companies provide the potential to earn investment income on the funds set aside for future claims payments. Investment returns can contribute to funding future claims and potentially offsetting insurance costs.

Captive insurance can address several exposures that do not happen often, but when they do can be catastrophic to the organization. This can include; Property, Professional Liability, Product Recall, Product Liability, Directors and Officers Liability, Employment Practices Liability, Pollution, Crime, Cyber Risk, and Subcontractor Default.

Benefits of this approach are:

  • Ability to segregate funds in a regulated insurance entity over time to fund unexpected large losses.
  • Captive insurance surplus can support risk management operating expenses and offset future insurance costs reducing long-term dependency on the commercial market.
  • Offers an alternative to the commercial insurance market — strengthening negotiations and expanding alternatives.
  • Potential to build up underwriting profits of the captive insurance company on a tax-favorable basis, contingent on complying with Section 831(b)of the US Tax Code.

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