| There are various types of captive structures ranging from single parent captives, who typically insure only risks from their parent companies, to group captives, association captives, risk retention groups and rent a captive arrangements. Captives serve as a valuable tool in addressing a range of business issues. Many significant benefits can be realized even with a simple single parent structure.
Benefits of Captives
The captive permits the parent to accumulate funds for future liabilities without paying for risk transfer. This pool of funds which is controlled by the parent can be used to fund risks which may be traditionally expensive or prohibitive to insure, such as environmental impairment, political risk, employment practices, currency fluctuations, interest rate fluctuations, directors and officers, or punitive damages.
The captive, as an insurance company, has direct access to the reinsurance markets as a vehicle to offset risks. Reinsurers often offer lower prices given the broader range of the market and in some cases can offer an all lines stop loss program which would limit the total potential liability of the captive.
A captive potentially offers tax savings, however, tax deductibility is a complicated subject and not all premiums may be deductible. Whether premiums will be deductible when paid needs to be addressed with the assistance of professional tax planners in the jurisdiction of the insured.
Other benefits include:
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improved cashflow – premiums based on the loss experience of the captive, not set by a third party insurer
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underwriting flexibility to provide coverage which is unavailable or overpriced in the marketplace
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incentive for loss control
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greater control over claims
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investment income belongs to the captive - surplus can be used to reduce future premiums or be returned to the parent
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underwriting and retention funding flexibility
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reduced cost of operation
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being able to tailor coverage to meet specific needs
The corporate structure and risk management and financial objectives of each corporation will determine whether a captive is an attractive option.
Life Companies
Another form of BVI insurance company is the long term insurer, which can offer a range of life and annuity products. A life company may enable high net worth individuals to enjoy tax-deferred account accumulation and build up.
We will work with your legal and tax advisors to explore the range of options which may be available to suit your needs.
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