SRMC Fall Conference 2012 Captives, Microcaptives

Transcript:SRMC Fall Conference 2012 Captives, Microcaptives:
SRMC Fall Conference 2012 Captives, Microcaptives and More….. Presentation by: Kathryn Marsh Somers Risk Consulting kmarsh@somersriskconsulting.com 1 Agenda Captive Overview Micro-captives Risk Pooling Arrangements Case Studies Steps for Looking at the Captive Option Q&A Info on Somers Risk and Bio Somers Risk Consulting 2102 2 What is a Captive? A captive is an insurance company that insures the risks of its owners, affiliates, or a group of companies. It issues policies, collects premiums, and pays claims. Licensed Insurance Company Formed to insure or reinsure the risk of its owners or unrelated parties of their choosing Regulated under special legislation regulating captives (regulated less stringently than state insurance laws which govern fully admitted insurance companies) Located offshore or onshore – many domiciles available Admitted only in its domicile and non-admitted in all other jurisdictions. Characteristics of Captives Reasons to Form a Captive Somers Risk Consulting 2102 5 Types of Captives Single Parent Captive – insures the risk of the owner and it subsidiaries, traditionally used by large companies Group /Association Captives – owned & operated by a group of members; 100% of risk and assets pooled Sponsored/Rent-a-Cell /Segregated Cell/Series Captive – owned & operated by a sponsoring entity; liabilities and assets legally segregated Micro-Captive/831(b) Captive – is a single parent captive writing smaller premiums that has special tax benefits. These are focused on small to mid-size businesses. Somers Risk Consulting 2102 6 Micro-Captive option In recent years, increased focus on Micro-Captives as a result of: Increased awareness of this option amongst attorneys, financial planners, accounting firms, consultants, etc. Increased sophistication of small and medium sized companies Recognition of the following benefits: Heightened awareness of ability to control risk management costs Potential to insure and pre-fund enterprise risks Potential to share risk and decrease exposure to catastrophic or large losses Asset protection Favorable tax treatment Estate planning/wealth transfer Somers Risk Consulting 2102 7 What is a Micro-Captive? Section 831(b) of the IRS Code allows Property/Casualty insurance companies writing under $1.2 million in premium to be taxed on investment income only. They are not taxed on underwriting income. Somers Risk Consulting 2102 8 How does it work? Premium payments from company to insurance company are a tax-deductible expense Premium less losses/expenses = underwriting profits - grow in captive untaxed Annual – therefore, ability to have significant tax-free growth Typically, tax will be paid on dividends when paid -currently at 15% dividend/capital gains rates