A captive insurance company is an insurance company that is established to insure the risks of its owner and affiliated companies. When properly structured, premiums are tax deductible to the company and received tax free by the captive. The captive serves as a more efficient method to self insure. As the captive receives premiums every year, the increasing capital and surplus serves as an efficient pool of assets for any future losses.
The business had 8 years of detailed loss data to help analyze their exposure. Risk Management Advisors was tasked with implementing a captive insurance company and create a warranty policy for each instrument sold by the insured. Historically, it was thought that only large companies could form a captive to provide warranties, guaranties and service contracts. However, small and medium-sized companies can now effectively manage risk through a captive insurance company.
A captive insurance company can be a very unique and flexible tool. It affords the owner a better way to manage their risks and protect their wealth.