Introduction
Captive Dynamics is a broker. The Captive insurance industry is growing quickly and generally involves substantial sums of money. People who have a potential interest in forming a Captive insurance company or in using a “Cell Captive” to serve some business purpose will be well advised to share their plans with us.
Ed Beneville has had a wonderful career in the insurance business. He formed his own Captive in 1999 and has had close personal contact with a handful of the most successful Captive management company owners. He knows where to go to get things done right. He has been running Captive Dynamics since the middle of 2007. Like any other broker, Ed does not earn a dime unless and until he has introduced an interested party to a Captive manager, a deal has been made, a proposal has been accepted and money has changed hands. At that point, Ed earns a portion of the Captive manager’s fees and/or a small share of whatever reinsurance commission is earned.
Along the way, we protect your privacy. The more money that’s involved, the more sensitive that privacy issues become. We can acquaint you with the Pros and Cons of Captive insurance companies. We have no need to comment on Captive managers; we will only introduce you to those we know to be competent. We take calls, answer questions and respond to comments.
The Who page of this site can help you know whether you are well suited for Captive ownership. It leads to comments on how financial advisors, lawyers, insurance brokers and other capitalists can use captives to serve their clients. The What page, speaks of what captives are and what they do. It also discusses the different types of Captive insurance company organization. We highly recommend that you become familiar with Protected Cell Captive Groups. They are described in our Small Captives section but they are not necessarily small.
Right beside the Small Captives section we comment on the IRC 831(b) tax filing which always concerns a “Small” Captive and which accounts for a great deal of the interest in Captive insurance companies.
Our Why page is free of baloney. It covers a lot of ground about ways that Captives benefit their owners. Captive Insurance is a good platform for risk management and tax management. Every business faces the risk that external events will cause the insurance industry to raise its premiums or exit a market. Captives insulate their owner’s businesses. If you like the Captive Insurance idea, you may want to know How to proceed, and When and Where. These topics are situationally sensitive and do not lend themselves well to generalities. So we cover them now with a broad brush. If you need specific information or general guidance, call us at 1-760-366-4670. No charge.
What are your goals? Are you focused on Risk Management, Tax Savings,Employee Health Benefits, or just reasonably priced insurance? Do you want to save money? Is your business served mostly by nonstandard market insurers?
You should know this about the Captive landscape: Insurance companies use 35% to 45% of premium income to cover their expenses and earn a profit. Said another way, only 55% to 65% of your commercial insurance premium is used to pay claims. A Captive insurance company gives you good opportunity to retain much of that. If you have no claims you’ll save more. Operational savings result from reducing commission payments, profit to outsiders, advertising costs and office overhead along with hedges against moral hazard, adverse selection and deference to Wall Street analysts. A commercial insurance company pays claims per the law and policy terms and adds any balance to its reserves. When a premium is paid to a Captive insurance company, claims and operating expenses are paid by the Captive and it keeps the balance. Most frictional expense is eliminated. That is an important consideration but there is at least one other; taxation. Most decisions to proceed with formation of a Captive Insurance Company are encouraged by tax considerations.
All insurance companies must set aside premium income to reserve against future loss. Small insurance companies that have premium income of more than $350,000 but less than $1,200,000, can file their income tax under IRC Section 831(b) and pay no federal tax at all on their premium income. Larger insurance companies receive tax treatment that is also very favorable but, unless they are growing rapidly or losing money, can move only part of their underwriting profits, untaxed, into reserve accounts.
Formation of a Stand-Alone Captive is a lengthy and relatively expensive process. The Captive Manager will need information about the prospective owner(s) and the companies he controls and plans to insure within the new Captive. Protected Cell Captives, on the other hand, can be formed very quickly and at much less cost to a prospective owner.
Choice of domiciles – Within the USA a growing number of States support Captive insurance companies. Not all of them have the same rules about Captive insurance companies. Your best choice for a domicile may lie offshore.
Selection of a Third Party Administrator (TPA), is done with input from you and your choice of advisors. There are many good ways to deal fairly with existing insurance arrangements and those that will emerge when you capitalize your own insurance company.