Contenu connexe Plus de InKnowVision (20) InKnowVision April 2012 HNW Technical Webinar - Captive Insurance1. InKnowVision’s Monthly
HNW Webinar Series
Technical Webinar
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3. Captive Insurance Companies
Insurance company
Formed to insure risk
Liability
Operating Risks
Business Risks
Exclusions
Deductibles
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4. Benefits
Wealth Accumulation
Favorable Tax Treatment
Control Risk
Customized risk coverage
Increased cash flow/profit center
Competitive advantage
Minimize Insurance Costs
Wealth Preservation / Asset Protection
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8. US Jurisdictions
Over 20 states
Some others
Utah, Nevada, Arizona, Colorado, Vermont, Kentucky, South
Carolina, Delaware, District of Columbia, and Hawaii.
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9. Profile Client
Successful business or profession
Has uninsured risk
Has insured risk willing to self insure
Premium not much more than 12.5% of gross
revenue
Premium of at least $500k or more
Or Premium of $200k or less
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10. Profile Client
Developers
General Contractors
Subcontractors
Manufacturers
Professional Services Firms
Franchisees
Restaurant / Hotel Chains
Physician groups (40 docs or more)
Hospitals
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11. Types of Captives
Pure Captive – Single Family House
Cell Captive – Apartment Building
Less expensive
(Revenue Ruling 2008-8)
Uses the 11 or more subsidiary safe harbor (Rev. Rul. 2002-90)
Requires pooling of risk
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12. Types of Captives
Single Parent Captive
Group Captive
Homogeneous – same industry
Heterogeneous – multiple industries
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13. Types of Captives
Foreign corporations taxed as US taxpayer
Foreign corporation not taxed as US taxpayer
Domestic companies – US Taxed
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15. Capital Required
Jurisdiction Requirements
$125k (Cayman)
$100k (Anguilla)
$27k Nevis
$250k+ (Vermont and Nevada)
Reasonableness requirements
Depends on premiums
History of claims paid
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16. Tax Issues
Premium Deductibility by US taxpayer
Ordinary and necessary
Real insurance
Risk sharing (spread risk over a number of insured)
Harper – 30% OK
Rev. Rul. 2002-89 - 50% OK
Pooling – form of reinsurance
Still must meet the safe harbor
Risk shifting – move the risk off of the balance sheet of the insured
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17. Tax Issues
Income to the captive
If captive is a:
Foreign corporation and not a CFC – no US tax
But 4% excise tax if writing domestic business
CFC or 953(d) company – US tax (unless 831(b) election)
Domestic company – US tax (unless 831(b) election)
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18. 953(d) Election
Election to be taxed as a US company
No excise tax on insurance premiums
Can own US real estate
Company files US tax return as if domestic company
Reduced filing requirements
Company must post LOC equal to 10% of gross income or have
assets in the US equal to that amount
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19. 831(b) election
For small insurance companies
Includes captives
Companies making the election can exclude up to
$1.2M in net premium (premium less underwriting
costs and expenses less losses)
Must pay tax on investment income
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20. Where are We?
Manufacturing company (C Corp)
$35M sales
Plants around the world
300 employees
Net profit - $4.5M annually
Insurable risks abound
Estimated premium to insure all risks totals $2M
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21. Captive Formed
Captive formed
Insurance coverage selected and written by captive
Premium paid $1.2M
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22. Income Tax Year 1
Deduction to manufacturing company
Saves approx. $400k in income tax
Captive makes 831(b) election
Captive has no taxable income
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23. Income Tax Year 2
Deduction to manufacturing company
Saves approx. $400k in income tax
Captive has some taxable income
Premium is non-taxable (if less than $1.2M
Investment income on reinvested underwriting profit is
taxable.
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24. Wealth Transfer
Consider establishing children or grandchildren’s
trusts as owners
Underwriting profit passes gift tax and GST tax free
to trust and its beneficiaries.
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25. Distributions from Captives
Distributions are taxable when paid out from the
captive (pure or cell)
Taxable as dividends
May be a favorable rate
If company is sold then sale proceeds are taxed at capital gains
rates
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26. Planning Idea
Captives do not have to have one owner
Part owner by client
Part owned by trust for kids
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27. Costs
Pure Captive or Cell Captive
$62,000-100,000 in year of formation
$37,000-75,000 in subsequent years
Plus cost of reinsurance pool.
Small Captive (per $100k of premium)
$10-17k year 1
$10K in years beyond year 1
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