What are the benefits of a captive insurance company?

Advantages of Captive Insurance

• Coverage tailored to meet your needs.
• Reduced operating costs.
• Improved cash flow.
• Increased coverage and capacity.
• Investment income to fund losses.
• Direct access to wholesale reinsurance markets.
• Funding and underwriting flexibility.
• Greater control over claims.

What does captive mean in insurance terms?

Issue: In its simplest form, a captive is a wholly owned subsidiary created to provide insurance to its non-insurance parent company (or companies). Captives are essentially a form of self-insurance whereby the insurer is owned wholly by the insured.

What is the difference between a captive and non captive company?

In short, captive insurance agents are contracted to work for one insurance company and can only sell that company’s policies. On the other hand, independent agents are contracted to work with a variety of insurance companies and can sell policies from multiple providers.

How do captives work?

The captive provides the owner or its affiliates with insurance coverage for risks that the owner wishes to retain, and the insured entities pay premium to the captive. Any profits made by a captive are retained within the parent company’s group rather than being ‘lost’ to the insurance market.

Why are captives formed?

Captives are a way for companies to reduce reliance on the commercial market and provide stable, long-term risk financing. Captives will not be the lowest cost option in all years, so to be successful, they will need to be committed to the process long term.

What is a captive carrier?

A “captive insurer” is generally defined as an insurance company that is wholly owned and controlled by its insureds; its primary purpose is to insure the risks of its owners, and its insureds benefit from the captive insurer’s underwriting profits.

What does not captive mean?

Non-captive agencies don’t work for one insurance company, so they’re allowed to purchase insurance that come from different businesses. This independence is very useful—especially when not all companies provide the same amount or type of coverage. They also aren’t tied to the strict regulations of the industry.

What does non-captive mean?

Non-Captive Market Locations means traditional, street-level free-standing and in-line restaurant locations that: (a) are not contained within larger retail or other foot traffic generating environments; and (b) are not co-branded with other retail food service concepts.

What is captive organization?

A captive unit is a business unit of a company functioning offshore as an entity of its own while retaining the work and close operational tie ups within the parent company.

What is captive use?

captive use means use of the entire quantity of mineral(s) extracted from the mining lease in a mineral processing unit or mineral beneficiation unit owned by the lessee excluding the mineral of substandard quality or mineral rejects; Sample 1. Sample 2.

How do captive insurance programs work?

An insurance subsidiary formed to provide risk mitigation services to its parent company. 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.

How does cell captive insurance work?

Cell captives are a valuable risk management tool, providing companies with a vehicle through which to write their own insurance risks. Cell captives allow participants to access the conventional insurance and reinsurance markets directly and cost-effectively to cover the excess and catastrophe exposures.

Why would an insurance company choose the captive option?

One of the many reasons to choose the “captive option” is because of accounting and tax rules, which allow for the deduction of insurance premiums by insurance companies. Again, as a captive is an insurance company, reserve funds held for the payment of future losses are deductible.

How does a captive achieve premium deductibility for its parent company(s)?

In doing so, premiums paid to the captive must be deductible from your (or your client’s) U.S. federal income taxes—just like the premiums paid to any insurance company. So how does a captive achieve premium deductibility for its parent company (s)? Two IRS tests—risk shifting and risk distribution—provide the answer.

Are reserve funds of captive insurance companies tax deductible?

Again, as a captive is an insurance company, reserve funds held for the payment of future losses are deductible. If a company simply increases its retention, the funds held in reserve do not constitute an insurance premium, and, therefore, the tax benefit is not realized.

What is the difference between a policyholder and a captive?

Policyholders buy in and then trust the provider to do good by them. In a captive, the insurance company is part and parcel of the greater organization which it serves and is steered according to identified business needs.