Why Form a Captive?
Captive formation benefits may be achieved by any number of circumstances which positively impact your business group.
The growth of captive insurance holdings has more than doubled over the last 5 years and over half of the Fortune 500 companies in the US utilize a captive.
Lower Insurance Costs
This is achieved through no profit loading, elimination or reduction of broker commissions and lower administrative costs.
Insurers rely on investment and underwriting profit to improve cash flow. Premiums are typically paid in advance while claims are paid out over a longer period of time. By utilizing a captive, premiums and investment income are retained within the group. The captive can also provide more flexible premium payment plan thereby offering a direct cash flow advantage to the parent.
A company can manage its own risk by increasing the deductible levels. These deductibles can be insured through the captive.
A captive can act as a focus for risk management and risk financing activities of its parent organization.
Access to the Reinsurance Market
A captive can access the reinsurance market which operates on lower cost structure than a direct insurer.
Control of underwriting, rates and forms, as well as control of claim settlements and investments.
A captive can offer specifically tailored wordings in the structure of the policies.
Captives can provide coverage to the primary operating company and affiliated entities that are either cost prohibitive or not available in the market place.
Insurance companies are provided a special tax treatment that provides smaller captives being taxed only on their taxable investment income.