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Insurance Captives help bailout this economy.

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ScottN

Interested in Insurance Captive

When a captive is established, most CEOS are interested in any potential tax consequences. Payment of premiums to a captive for insurance coverage may well be deductible as an ordinary business expense. But they may not be so deductible. If the tax consequences are important, then a lot of care should be taken along with engaging trusted, qualified advisers. Elsewhere the reader can find qualified and expert tax advice. My mission is to illuminate a few other points of consideration to support the opinions of the tax experts.Risk DistributionAs to risk distribution, there are many more puzzling arguments. Some rulings have suggested that writing only one line of coverage in the insurer does not equate to risk distribution. This argument would seem to harm many traditional insurers who write only workers compensation or disability or boiler and machinery. This is an area for further refinement, i.e., more legal costs.There have been some vague safe harbors, such as insuring more than 13 but less than 50 insureds. This has also been successfully overcome with skilled arguments and specific circumstances.An approach that has had success is to have an outside insurance party conduct a review of the captive owner’s exposures and current coverage to determine if there are exposures peculiar to that business which are not addressed by the traditional market. This approach can be viewed as reasonable for businesses whose line of work isn’t well defined by the traditional insurers, such as some construction exposures and supply line issues.Certain success are gained by reinsuring out of the captive more than 50 percent of the risk as measured by premiums. The choice of the reinsurer becomes critical as that can be viewed as not constituting “real” insurance.

Scott Wiseman has over 5 years of experience with the Insurance Captive business

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