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Who should consider a captive?
Captive insurance programs are structured with a common goal in mind -- to capture the underwriting profit and investment income normally retained by the traditional insurer, as well as provide for a long-term stable insurance solution. A captive is an ideal form of alternative risk financing for progressive organizations that share such qualities as:
- Long-term financial strength and stability
- Progressive, forward-thinking leadership
- Strong commitment to safety, with solid safety programs in place
- Better-than-average loss histories within their respective industries
- Annual casualty premiums of at least $250,000
Larger businesses looking to create a more cost-effective vehicle for assuming risk, achieving compliance and resolving claims may look to an insurance entity that they can own. This type of captive would enable you to benefit from underwriting profit, investment income and greater overall control of your risk management program.
The single-parent form of ownership has been in use for more than 50 years, withstanding the test of time, regardless of insurance and stock market swings. While Fortune 500 companies have universally employed single-parent captives, the utilization rate among large middle market firms continues to rise. A minimum annual premium of $1,000,000 is required for general liability, commercial auto and workers’ compensation polices in order to qualify for the benefits of a single parent captive.
A member-owned group captive is an independently owned and operated insurance entity that provides insurance to, and is controlled by, its owners. This structure has the benefit of being either homogeneous (same industry) or heterogeneous (different industries) in nature.
The transparency and control offered by a member-owned group captive enables you to significantly improve both the financial and operational performance of your business. The Gibraltar Group utilizes member-owned group captives to extend many of the same benefits of a single-parent captive to mid-sized organizations.
Segregated Cell Captive
Alternative risk financing solutions involving protected cell, or segregated cell, captives are designed to provide you with the benefits associated with a wholly-owned captive insurance company, without the capitalization and administrative requirements. By establishing legally segregated cells or underwriting accounts, segregated cell captives ensure that your assets and liabilities are diversified, as well as protected.
Health Benefit Captives
In today's challenging healthcare environment, it requires a great deal of creativity and strategic thinking to deliver a solution that maximizes health-related benefits, while controlling costs. Wellness programs are playing an increasing role in the future of employee benefits, and they must be considered as a part of a proactive program.
In response to these trends, Gibraltar utilizes a group-stop loss captive for organizations that are currently self-insured, or are looking to become self-insured. This structure gives you greater cost predictability, as well as the ability to control and retain a significant portion of your premium dollars, so you can provide your employees with competitive benefits at an affordable cost.
Section 831(b) of the Internal Revenue Service tax code permits qualified captives, such as those financing enterprise risk level exposures on net-income protection policies, to receive up to $1.2 million per year in insurance premiums, completely tax free. Therefore, captive members paying premiums can deduct up to $1.2 million per year for insurance costs, while the amount is not taxable to the captive. All investment income in the 831(b) captive is taxed at normal corporate rates, and when a captive is sold or liquidated, its owners will pay on the gain at favorable long-term capital gains rates.
An extremely powerful estate planning vehicle, this form of captive allows you to effectively transfer income received from premiums to the next generation without any gift of estate tax. Furthermore, the captive can purchase life insurance as a permitted investment allowing you to purchase life insurance on a pre-tax basis, effectively reducing your costs by 40%. Few other business strategies can provide these planning benefits.