Benefits of Captive Insurance Companies, by Tom Cifelli of Captive Experts 7.14.2014

Effectively designed and managed captive insurance companies achieve these goals and objectives:

  • Improve cash flow predictability and balances
  • Retain control over risk assets (investment reserves accumulating to cover potential future losses)
  • Improve risk coverage – customize insurance program to cover previously uncovered risks
  • Reduce insurance expense and lower risk financing cost (retain profits previously earned by commercial insurance companies)
  • Create new profit center (well designed captives should be very profitable and often can create new revenue streams)
  • Minimize taxes
  • Increase asset portfolio liquidity
  • Avoid the volatility of the cyclical insurance market
  • Tailor insurance policies and programs to your specific needs
  • Improve risk management by controlling risk via improved claims management, underwriting flexibility and access to wholesale reinsurance markets
  • Improve Claim Reserve Investment Management
  • Capture Underwriting Profits (commercial insurance companies are generally very profitable as are most captives)
  • Increase tax saving opportunities (insurance companies benefit from favorable accounting and tax rules)
  • Expand wealth accumulation options (tax leveraged wealth accumulation possible)
  • Protect assets (significant asset protection possible with the advanced ownership structures allowed today)
  • Reduce asset transfer costs (improve estate tax planning)

Main Risks/Cons of Captives

Captive insurance companies are not a solution for every situation but they go a long way towards improving business risk management practices. The business risks of owning a licensed insurance company are many including:

  • Can be expensive to form, capitalize and operate (unless you engage Captive Experts LLC)
  • Poorly designing or operating your captive causing unexpected liabilities and costs
  • Restrictions on captive investments (we have sophisticated methods to expand investment options)
  • Exposure to regulatory sanctions and fines
  • Failing to qualify for targeted tax incentives
  • Unexpected windup costs and taxes