What is a Captive Insurance Company?

At its simplest level a captive insurance company is a wholly owned subsidiary of a corporation setup in a jurisdiction that has laws that allow for this type of corporate structure and planning.  The captive is a licensed insurer and does insure the activities of the parent corporation. It does all the things other insurance companies do, evaluates the risks, writes policies, sets premium levels and accepts premium payments. The parent pays the premiums to the captive and files claims when insured incidents occur. The benefit of a captive is that the premiums paid to the captive are deductible to the parent, but not taxed as income to the captive. The captive delays income of the premium until a claim is filed and paid. The captive invests the premiums for future claims.

Several companies can band together to create one captive called a risk retention group. This is allowed through the federal liability and Risk Retention Act of 1986 (LRRA).

Captives provide a great opportunity for asset planning and integration of  services. I work closely with agents at Atlas Insurance Management to determine the options available to clients and to establish captive insurance companies in the appropriate jurisdictions. We ensure that the captive remain compliant with the tax laws and regulations.