OUR THOUGHTS ON:

Formation of Insurance Captives

Audit|Tax

By John Popies

PRIMARY CONTACT: John Popies CPA (Pittsburgh)

Once it has been determined that an insurance captive is a viable option, many things need to be considered/completed.  Such items include feasibility studies, financial projections, location of domicile, and the submission of an application for an insurance license.  In addition, it is very important to select a qualified insurance manager, especially during the planning stage, because decisions made during that process can be critical to the success of the captive.

Another consideration in the formation of the captive is the amount of capitalization required.  The amount will be largely dependent on the level of risk projected to be assumed by the captive, as well as the requirements of the particular domicile chosen. 

Captive Insurance Risk

Risk to be insured is another important determination to be made during the formation process.  Regarding risk to be assumed by the captive, care should be taken in the process of selecting risks for the captive to insure because true insurance requires a certain amount of fortuity.  In other words, any risk that is assured of occurring, even if the amount of the risk is not clearly determinable, is not a true insurable risk.  Typically, businesses are paying premiums to one or more commercial insurance companies to protect them from specific risks, some of which could be catastrophic if they were to occur without insurance.  The goal of smaller captives would be to maintain the transfer of the catastrophic risks to the commercial carriers, but to assume the underwriting associated with the more manageable risks.

For more information regarding insurance captives, contact your Schneider Downs representative and stay tuned for more Schneider Downs Insights.

© 2014 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2018 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

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