Captive Insurance Services

mojo+logo.jpg

In collaboration with our industry partners, we researched and are proud to introduce our Captive Insurance Offerings.  A captive insurance company (or “captive”) is a bona fide insurance or reinsurance company owned by a non- insurance company (or “parent”), which primarily insures or reinsures the risks of its parent and/or affiliated companies.

At a very basic level, a captive is a form of risk retention mechanism, like a deductible or self-insured retention, that is used to aggregate premium and loss information for its parent. Furthermore, a captive can make risk financing more cost effective and ultimately reduce the total cost of risk. A captive will control the budget that is allocated to risk management and will pay for the company’s losses.

 

Captives are formed to cover practically every risk.

Why Form a Captive?

1.  Financial Benefits

      Cash Flow Considerations

       Cost of Capital Reduction

       Speed of Claims Payment/Settlement

       Stabilizing Risk Financing Cost Over Time

       Portfolio Effect

2.   Risk Management Benefits

       Direct Access to the Reinsurance Market

       Improving Insurer Purchasing Power

       Cycle Management and Independence

       Funding of Non-Insurance Risks

       Control Over Claims Settlement

       Setting of Claims Reserve

 

3.  Organizational Benefits

       Formal Mechanism of Risk Retention

       Appropriate Funding of Risk Retention

       Corporate Governance Considerations

       Creation of a Additional Revenue Stream

 

Additional Considerations

  •      Capital Commitment

  •      Risk of Adverse Results

  •      Operating Cost

  •      Commitment of Management

Captive Structures

Deductible Reimbursement Captive Program:

Under a “deductible reimbursement” program, the insurance policy is a direct placement between a business/insured and the captive.  The insured purchases a standard deductible policy from a commercial insurer, whereby the insured is legally obligated for losses paid within the deductible. The insured then obtains a “reimbursement” or “financial indemnity” policy from the captive, whereby the captive is obligated to reimburse the insured for deductible losses paid to the insurer.

Slide1.PNG

Fronted Captive Program:

Under a “fronted” captive program, the insurance policy is issued to the insured by an admitted “fronting” insurer who then reinsures all or a portion of the risk to the captive. This provides the insured the ability to retain risks via a captive while also having “admitted” coverage via the policy issued by the admitted fronting insurer, as required by regulators and third parties.

Slide2.PNG

Your Captive Operational Partners

Stepping into new territories can be a little scary.  So we promise to be there throughout this journey.  We bring to this relationship the following in support of your success...

  • Internal Relationship Mangers

  • Project Leads (if applicable)

  • Insurance Technicians

  • Re-insurance Technicians

  • Operational Partners that include...

    • Actuarial Advisors​

    • Tax Preparation Specialists

    • Legal Advisors

    • Registered Agents/Registered Office

Captive Cost Considerations

While there are many potential benefits in forming a captive, several key issues and potential challenges should be considered before establishing a captive insurer. Thoroughly evaluate the following costs and operational considerations.

  • Feasibility Study

  • Start Up Costs

  • Annual Operating Costs

  • Captive Domicile Premium Tax

  • Self-Procurement Tax

  • Capitalization

  • Opportunity Cost

  • Adverse Underwriting Results

Captive  Tax Considerations

The Tax Cuts and Jobs Act (“TCJA”), effective 01 January 2018, affects virtually every aspect of the US tax code. The goal of business tax reform was to reduce the overall tax rate and overhaul the taxation of international operations in order to make the US more competitive in the global marketplace. Though the overall reduction of the corporate tax rate to 21% is a welcome development, other changes to the tax code will have a complex impact on the insurance sector and many captive owners are wondering how their organization will be affected.

 

We strongly encourage captive owners to review and discuss how the new law may impact their captive with their organization’s tax department and/or external advisors. While we are not tax experts and cannot provide advice on the matter, we welcome the opportunity to be part of these discussions.

US Federal Tax:  

  • Loss Reserve Computation

  • Proration Rules

  • Net Operating Losses

  • Revenue Ruling 2002-89

State Tax:

  • Gross Premiums Tax Rates

  • Procurement Taxes

International Tax:

  • controlled Foreign Corporations (CFCs)

  • Non US Shareholders

  • Participation Exemption (Dividends Received Deduction (DRD))

  • Transition Tax

  • Passive Foreign Investment Companies

  • Base Erosion and Anti-Abuse (BEAT)

Captive  Domicile Analysis

When selecting the location or domicile for your captive, the key factors that you should consider include:

 

  • Ease of formation

  • Regulatory environment

  • Flexibility of regulations

  • Service support infrastructure

  • Geography/ time zone consideration

  • Experience in your specific industry and the type of risk being underwritten

  • Accountability, communication and convenience

  • Taxation

  • Exit considerations

A feasibility study will help you to decide on the most suitable options(s) for your business.  The top 10 domiciles ranked by the number of captive licenses at year-end 2015 included...

  1. Bermuda

  2. Cayman Islands

  3. Vermont

  4. Utah

  5. Delaware

  6. Anguilla

  7. Guernsey

  8. Nevis

  9. Barbados

  10. Luxembourg

Captive  Legal Advice 

The Company should consult with legal counsel for guidance related to the ownership of the captive insurance company. The Company should also consider the regulatory impact of the captive insurance subsidiary as the project moves forward in the implementation phase.