Comprehensive Capabilities

  The foundation of AWP Life Brokerage is the belief that firms are strengthened by the ability to work in tandem as a unified consortium.  Our specializations include insurance concepts and...


Industry Leader

  AWP has proven continual leadership in delivery of benefits solutions for companies of any size as well as we continue to be a leading enterprise in life insurance planning and...


Institutional Relationships

Institutional accounts are integral to our overall distribution plan.  We define institutions as banks, wirehouses, regional broker dealers, and CPA networks. AWP has acquired recognition as a player in the institutional...


Pioneering Captive Insurance

Introduction Despite the fact that the concept of “captive” traces its origins to the beginnings of formalized trade, many people believe captive insurance companies to be a relatively new phenomenon.  Formed...


Premium Financing

Many affluent clients are aware of the benefits that life insurance can provide.  However, clients often harbor concerns that a substantial income tax liability will result from liquidating low basis...


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Captive Insurance

What is a Captive Insurance Company?


Captives are privately held insurance companies that issue policies, collect premiums, and pay claims, identical to the function of commercial insurers.  The main difference is that a captive does not offer insurance to the public.  In general, creation and operation of a successful captive insurance program involves a substantial amount of risk to the operative company.


Case Law


The Internal Revenue Code, related IRS rulings, and case law are all in support of the use of captive insurance companies for risk management.  When properly employed, use of a captive insurance strategy can help a business to better manage insurance costs, control claims, accumulate surplus in anticipation of unforeseen risk, and allow for accumulation of wealth on a tax-deductible basis.


Small Captive Insurers


IRC Section 831(b) allows for a property and casualty insurance company to opt to be taxed solely on its investment income on the condition that annual premiums do not exceed $1.2 million.  Effectively, the §831(b) election allows small insurance companies to receive up to $1.2 million per year in premiums and without paying income taxes on those premiums.

 

Accommodates a corporate family in covering business risk on a tax-deductible basis with coverage normally unavailable within the traditional insurance marketplace (e.g., contingent sales tax liability, construction rework exposures).

 

Coverages are able to modified, rewritten, or non-renewed on an annual basis at the discretion of the insured.

 

Small captive insurance company structures may be used for estate planning, company, perpetuation, key employee benefit/compensation package purposes, and to begin to pre-fund the necessary capital and surplus required in anticipation of a traditional captive structure insuring traditional lines of coverage.  What Are Risks Small Insurers Typically Underwrite?  Due to their relatively small size, these captives normally are not utilized as replacement of a business owner’s commercial insurance package.  Rather, small captives are strategically structured to act supplementary to the many risks that businesses typically self-insure or at times choose not to insure because of cost or lack of availability.  Several examples of these sometimes overlooked risks that small captive insurance companies usually insure are:


Directors & Officers Liability

Antitrust & Unfair Competition

Errors & Omissions

Credit Default / Accounts Receivable

Employment Practices

Know-Off Lost Profit

Copyright, Trademark, Patent Infringement

Lawsuit Interruption / Legal Expense

Lender Failure

Machinery Breakdown

Advertising & Marketing Failure

Weather Risks

 

Before determining how to address each risk, it is advisable to conduct a cost/benefit analysis.  Can insurance be purchased?  Is it justifiable economically to purchase insurance?  Is a particular risk better financed with a captive?  These are just a handful of the questions that must be answered in order to decide whether or not a captive is right for your company.