Captive Insurance

Captive Insurance Companies BookThe firm practices in all areas of captive insurance company planning, including design, structuring, formation, and licensing, as well as consults on myriad issues involved in the running of a captive. The firm is also active in litigation involving captive insurance companies and their many variants, from reinsurance coverage disputes to controversies involving group captive arrangements.

The firm assists prospective captive owners and their advisors in evaluating, designing, and implementing captive solutions. The firm also reviews existing captive structures and suggests ways that they can be used more efficiently. The firm also has relationships with experienced and reputable insurance managers, actuaries, underwriters, and accountants who specialize in captive insurance arrangements.

Jay Adkisson is the author of the book Adkisson's Captive Insurance Companies: An Introduction to Captives, Closely-Held Insurance Companies and Risk Retention Groups which is the all-time best-selling book and an excellent primer on the subject. Available from: Amazon and Barnes & Noble

Jay has been active in the alternative risk management sector since 1995, and has been forming captive insurance companies since 1998, when he became a member of the first consulting firm to regularly structure and manage captives in the privately-held midrange market. For several years Jay was the owner of a licensed captive insurance management firm in the British Virgin Islands. Jay is now the current Chair of the Committee on Captive Insurance Companies of the American Bar Association's Business Law Section.

You may contact Jay Adkisson for a telephone conference or for a speaking engagement by calling his scheduling assistant at 949.200.7753 or by e-mailing him directly to jay [at] risad.com
 

OVERVIEW OF CAPTIVES

In its most simple form, a captive insurance company is an insurance company owned by the parent that underwrites the insurance needs of the parent's operating subsidiaries.

Until 2001, the IRS repeatedly but unsuccessfully challenged captive insurance companies as subterfuges for non-deductible self-insurance within the business. After the IRS lost its $600+ million challenge against a captive owned by United Parcel Service in 2001, the Service resigned itself to the legitimacy of captive insurance companies and soon thereafter abandoned its economic family challenges to captives. The IRS has since issued a great deal of guidance to assist captive owners in their proper structuring, management and reporting.

Nearly all major corporations have captives -- indeed, it is hard to identify a major corporation that does not have at least one captive insurance company. Some corporations have multiple captives that serve different risks. For instance, a corporation may have one captive that primarily covers the corporation's general liability, environmental liability, and product liability risks, and then another captive that insures the employee benefit liabilities of the corporation, such as workers compensation and healthcare.

Examples of corporate captives:

PARENT CAPTIVE
Exxon-Mobil Ancon Insurance Company
Archer Daniels Midland Agrinational Insurance Company
Verizon Exchange Indemnity Company
A T & T Gateway Rivers Insurance Company
University of Michigan Veritas Insurance Company
Starwood Hotels Westel Insurance Company
Johnson & Johnson Middlesex Assurance Company
C B S Corporation Central Fidelity Insurance Company
Boeing Astro Limited
New York Times Company Midtown Insurance Company

 

Increasingly, non-profit organizations are also forming captive insurance companies to handle their insurance risks in-house. One example above is Veritas Insurance Corporation, a captive insurance company of the University of Michigan. Another is the National Catholic Risk Retention Group, Inc., a captive insurance company wholly owned by its member dioceses.

More than half of the states have now passed captive insurance enabling statutes, and more than a half-dozen of those states now aggressively cater to the domestic captive market. Captives are now being formed for medium-sized businesses that are able to pay as little as $500,000 per year in premiums to their captive.

Captive Insurance Research Database

General Discussion & News


GENERAL DISCUSSION AND NEWS - Discussion of news and general issues relating to captive insurance companies and alternative risk transfer and management issues. Most new posts will go here unless clearly bound for another category.

Calendar of Upcoming Events - A listing of upcoming events involving captive insurance companies and alternative risk management, including association meetings, educational forums, etc. Please send us your meeting information to add to our list!

Structuring & Licensing


Formation and Licensing - Discussion of issues relating to the insurance license application, the issuance of the license, capitalization, etc.

Cell Captives and Rent-A-Captives - Discussion of segregated cell captives and similar arrangements that are primarily designed for businesses that are too small to economically justify a captive.

Group Captives and Association Captives - Discussion of large group captives and captives serving associations.

Risk Retention Groups - Discussion of insurance companies formed under the Federal Liability Risk Retention Act of 1986.

Insurance Programs


Risks and Policies - Discussion of the insurance risks for businesses and the policies that can be developed to cover those risks

Workers Compensation - Discussion of workers compensation insurance, including fronting arrangements and reinsurance.

Healthcare and Benefits - Discussion of moving employee healthcare insurance and other employee benefits into a captive or similar arrangement.

Medical Malpractice - Discussion of the use of captive and other alternative risk transfer strategies for medical malpractice liability. Includes discussion of tax scams sold to physicians involving medical malpractice premiums paid to offshore insurance companies.

Tax Issues


Tax Issues Generally - Discussion of tax issues relating to captives and other alternative risk transfer and management issues other than those listed in one of the forums below.

Federal Risk Shifting and Insurance Contracts - Discussion of the federal tax law requirements for "insurance" as they relate to the shifting of risks and what constitutes a valid insurance contract as opposed to an economic hedge.

Federal Risk Distribution - Discussion of the federal tax law requirements of risk distribution, including what does and does not qualify for the 12+ affiliate safe harbor, and attribution issues.

Federal Excise Taxes on Insurance - Discussion of the federal excise taxes on insurance premiums paid, including premiums paid to offshore captive insurance companies

831(b) Election - Discussion of the 831(b) election for insurance companies whose annual net premium income does not exceed $1.2 million per year.

501(c)(15) Exempt Insurance Companies - Discussion of insurance companies qualifying for exempt treatment under IRC section 501(c)(15) for gross receipts not exceeding $600,000 per year of which at least half those receipts are premium income.

State Income Tax and Independently Procured Tax Issues - Discussion of state income tax issues for alternative risk management transactions and captives, including whether out-of-state captives are subject to state income tax and whether a state may assess a premium tax or independently procured tax to premiums paid to captives.

Utilization of Assets


Captive Investments - Discussion of appropriate vs. inappropriate investments for captive insurance companies, permitted asset rules, and regulatory preferences.

Loanbacks - Discussion of the practice of having the captive loan money back to an insured or the parent company and the effect of loanbacks on the tax treatment of the captive arrangement.

Captive Service Providers


Accountants and Auditors - Listing of accountants and auditors who provide bookkeeping services and/or have been admitted by an insurance commissioner to perform audits of captive insurance companies.

Attorneys - Listing of attorneys and law firms that provide services to captive insurance companies and similar alternative risk transfer arrangements.

Actuaries - Listing of actuaries who provide actuarial services to captive insurance companies.

Managers - Listing of captive insurance managers who have been admitted in one or more jurisdictions to administrate captives.

Other Service Providers and Consultants - Listing of service providers to captives not otherwise listed above and consultants to captive insurance companies and alternative risk transfer structures.

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