What Is A Captive Insurance Company

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					                                        What is a Captive
   CAPTIVE INSURANCE PLANNING
     FOR THE MIDDLE MARKET
                                       Insurance Company?

        A captive is a small property and casualty insurance company usually formed by a business owner to provide
        property and casualty insurance for the related businesses. The policies may either supplement or replace
        existing conventional coverages. Often the captive is best used for unique, industry specific coverages not
        readily available in the conventional markets.

        Under Section 831(b) of the Internal Revenue Code where annual premiums are less than$1.2 million a year,
        the underwriting profits of the insurer are federal income tax exempt.

        Over the years, IRS tax guidance and numerous court rulings have established the parameters wherein tax
        compliant captives operate. Statutory authority plus IRS rulings and various judicial decisions make this an
        ideal time for closely-held businesses to consider a captive.


         a c ap tive provides a number of advantages for a business , including :

         n	Insure Hidden Risks.
             Most business owners unknowingly self-insure a large amount of risk. With a captive, self-insured,
             under-insured and un-insured risks can be converted into tax-deductible premiums that are paid
             to your captive.

         n	Reduce Costs, Capture Underwriting Profit.
             Typically, a large percentage of premiums paid to a commercial insurer goes to litigation costs,
             marketing, overhead and profit. By supplementing or replacing a portion of conventional coverages,
             a captive can cost effectively mitigate risks.

         n	Wealth Accumulation/Asset Protection.
             Captives are one of the better asset protection tools available. Designed correctly, assets in a captive
             are difficult for the operating company’s creditors to reach. Captives also provide significant estate
             planning benefits.

           O
         n		wn Your Own Financial Institution.
             There are wide ranging benefits associated with owning your own regulated financial institution
             which can loan money and make investments with its own capital.




               improve                                     reduce                                          increase
                 risk                                    insurance                                           cash
             management                                     costs                                            flow

             Customize
            n	              Policies                    Stabilize
                                                       n	           Pricing                          Earn
                                                                                                    n	      Investment Income
             Increased
            n	           Breadth                        Manage
                                                       n	           Deductibles                      Retain
                                                                                                    n	          Underwriting
               of Coverage                                                                            Profits
                                                        Retain
                                                       n	       Premium
             Greater
            n	         Control of                        Dollars                                     Tax
                                                                                                    n	    Advantaged Financing
               Collecting on Claims                                                                   of Future Losses



www.CapstoneAssociated.com
www.CapstoneAssociated.com                houston, tx
                                          houston tx      ..   wilmington, de
                                                               wilmington de      ..   the valley, anguilla , b .w. ii.
                                                                                       the valley anguilla b w                 800.705.4014
                                                                                                                               800.705.4014
       Planning Opportunities                                           Optimal Candidates for
           With A Captive                                                 A Captive Include:
 n	Insurance Reserves: Protect the business through               n	Business clients with a significant operating business
    customized insurance policies against otherwise                  or professional risk, with a minimum of $1 million/year
    uninsured or under insured exposures or exposures                in taxable income should consider this planning.
    for which conventional policies are not readily available.
                                                                  n	Physician groups.
 n	Deferred Comp: Compensate key executives and avoid
    ERISA issues through their ownership of the captive,          n	Other professional groups such as engineering, law
    incentivising key employees to implement loss mitigation.        and accounting firms.

 n		 Insurance: Use pretax dollars in the captive to
   Life                                                           n	Real estate developers, home builders, and contractors.
    purchase life insurance as one of a diversified pool of
    investments.

 n	Buy Out Partners: Buy out partners using captive assets.

 n	Finance Purchases: Use the captive’s assets to make
    or finance investments.




                           Simplified Ownership Structure for
                              a Captive Insurance Company

                                      Owner(s)
                                                                                                      Captive Stock
                                      Invest $250,000 into a new captive insurance
                                      company and become 100% owner of the new
                                      company.




                   Controlling                                                                   Capital
                   Ownership                                                                   Contribution


                                                           Risk Coverage and
                                                           Payment of Claims
            Operating Business                                                         Captive Insurance Co.
            Pays up to $1,200,000                                                      Receives $1,200,000 or
            in annual insurance                                                        less in annual premiums.
            premiums for insurance                                                     Offers conventional
            coverages.                                                                 and supplemental P&C
                                                                                       coverages to business.
                                                   Tax Deductible
                                                     Premiums




www.CapstoneAssociated.com              houston, tx    .   wilmington, de   .   the valley, anguilla , b .w. i .   800.705.4014

				
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Description: Unexpected losses can wipe out an otherwise profitable business. Today captive insurers are the premier risk-financing tool for middle market companies. Capstone and its affiliates design, structure, form and operate captives domiciled in the U.S. and abroad, with staffed offices in Anguilla, Delaware and Houston. Today, we are the largest turnkey operator of captives for the middle market.