What are the two major types of captive insurance companies?

• Single-Owner Captives. These captives are set up and operated by a single owner to insure its own risks and the risks of its subsidiaries and affiliates. ...
• Group Captives. ...
• Rent-a-Captives. ...
• Protected Cell Companies (PCCs) ...
• Special Purpose Captive.

What is a pure captive insurance company?

Pure Captive — a captive insurance company with one corporate owner, insuring only the risks of the parent organization or its subsidiaries. Also called a single-parent captive.

How are captive insurance companies structured?

Basically, a parent company retains the cost of insurance coverage through the captive instead of paying premiums to a third-party insurer for commercial insurance. Said another way: A captive is an insurance company owned by the organization (or organizations) that it insures.

Why have a captive insurance company?

A captive insurance company represents an option for many corporations and groups that want to take financial control and manage risks by underwriting their own insurance rather than paying premiums to third-party insurers. The advantages of going captive are: Coverage tailored to meet your needs.

Are captive insurance companies consolidated?

The captive is consolidated and all transactions within the group are eliminated. Companies, including insurance companies, cannot recognize a claim liability until it has been incurred.

What is an 831 b captive?

831(b) Captive — a captive that may be taxed under Internal Revenue Code § 831(b), which provides that a captive qualifying to be taxed as a U.S. insurance company may pay tax on investment income only in any year that its written premium is at or below the threshold for the applicable tax year, which in 2017 was set ...

What is a captive management company?

Captive Management Company — a firm in the captive domicile specializing in accounting and other services for captive insurance companies, usually serving as the captive's principal representative in the domicile.

What is the difference between captive insurance and self-insurance?

The main difference to note between self-insurance and captive insurance is how each is set up. With self-insurance, the owner sets up a type of savings account where they save money to use when claims arise. Captive insurance, on the other hand, is more formal because it is a small insurance company.

Why are most captive insurance companies domiciled offshore?

Offshore domiciles

However, among the primary reasons noted by many captive owners is the major advantage that relates to legislative requirements which typically are far less onerous than those of onshore competitors when it comes to the margin of solvency and initial capitalization.

What can captive insurance companies invest in?

A company that wants very low risk will invest in bank deposit products, money market funds, and certificates of deposit. A captive insurer that wants to earn a little bit higher yield and return on its investments may utilize US Treasury bonds and bills, municipal bonds, and high-quality corporate bonds.

How are captives regulated?

Captives are regulated in a manner different from traditional insurers. A jurisdiction which is determined to establish itself as a captive domicile must pass enabling legislation to recognize that a captive is self-financing of risk.

How many captives are in the US?

Counting all states with captive statutes, the United States has become the world's largest domicile. Indeed, with close to 3,400 captives licensed in its states, the United States, by far, outranks Bermuda, which reported 711 captives in 2018 and the Cayman Islands with 703.

How big is the captive insurance market?

It nearly doubled in 2020, according to the “2021 Captive Landscape Report,” compiled by consulting firm Marsh. Across industries, captives have exploded in popularity, accounting for $60 billion in gross premiums, an increase of more than $6 billion.

What are the risks of a captive insurance company?

Is Primerica a captive agency?

Primerica's agents are captive, meaning they are dedicated to Primerica and cannot quote rates from multiple companies.

Who owns a captive insurance company?

The association captive is "pure," meaning that it insures only the risks of its owners. The sponsoring association may contribute 100 percent of the required capital, but since the association is owned by its members, its members indirectly own and have voting control over the captive insurance company.

What is a captive business model?

Captive model means that customer organization makes strategic decision to create its presence in the lower cost location and conduct work there as a part of its own operations. The activities are performed remotely, but they are not outsourced to the vendor.

Do captive insurance companies pay taxes?

Internal Revenue Code Section 831(b) provides that captive insurance companies are taxed only on their investment income, and do not pay income taxes on the premiums they collect, providing premiums to the captive do not exceed $2.2 million per year.

What is an 831b plan?

831(b) & 401(k) SIMILARITIES

Much like the 401(k) tax code allows an employer to set aside tax-deferred dollars for retirement, the 831(b) tax code allows a business to set aside tax-deferred dollars for underinsured and/or uninsured risks.

Why are captives offshore?

The motives for using an offshore captive may include tax planning. Regulatory differences between onshore and offshore have become significantly less as the offshore captive industry has matured.

Are captive insurance companies legal?

Captive insurance is a legitimate tax structure for small-business owners. Premiums paid to a captive insurer can be tax deductible if the arrangement meets certain risk-distribution standards. Thus, the business gets a current year write-off even though losses may never occur.