Offshore Captive Insurance Companies

Don’t you want to know whether your company is paying a considerable annual premium to your insurance carrier which in most years the payments claimed are so less than the premium? If yes, then a captive insurance company will be an innovative way of lowering the cost of risk and gain much better control. 

In this blog, I provide you with some details about offshore captive insurance companies.

What is an Offshore Captive Insurance Company?

An offshore captive insurance company is a supplementary or a secondary company that is completely owned by a non-insurance company. An offshore captive insurance company guarantees payments for the insurable risks or loss or damage of its parent company or any of its related companies or companies associated with its parent company. 

An offshore captive insurance company exhibits self-insurance to cover up the losses and damages by means of reinsurance in the commercial insurance market, in which an insurance company is set up by a group of companies or experts. The Commercial insurance companies that guarantee payments for the insurable risks and enjoy sufficient discounts and credits have a direct assess from the captive insurance companies.

Different Kinds of Offshore Captive Insurance Companies

The offshore captive insurance companies may be characterised into the following types:-

Pure Captive  It is a type of offshore captive insurance company that is completely owned by its parent company and guarantees the payments for the insurable risks of its parent company only.

Mutual Captive

  It is a type of offshore captive insurance company which is established to guarantee payments for the aggregate risks of the members of all mutual organisations, e.g. medical staff, Members of trade & industrial organisations.

Reciprocal Captive

  It is a combination of captive insurance companies that carry on self-insurance under a general management structure on a collective basis. These captives could expand their basic funds.

Pure captive turned reinsurer.

  It is a pure captive insurance company that enters into the commercial insurance market by exploring businesses from external resources.

Advantages of an Offshore Captive Insurance Company

The major advantage of an offshore company is cost reduction. In recent times, it is found by the corporate groups that the insurance cost is a major overhead. These corporate groups are found to have large insurable risks too. As the cost of insurance is a major overhead, it can be said that Increased rents, pay-outs and poor stock performance have resulted in the insurance companies increasing premiums and reducing the services and conditions.

Following are the specific cost advantages:-

Premium Credits & Commissions 

  Corporate groups are the one who set all these premiums and commissions and also to create lower premiums. The captive insurance companies keep intact all these allowed credits and commissions.

Investment of Premiums

 The captive insurance companies help the corporate groups to hold the overall reinsurance premium until the due date of the next reinsurance premium. During the retention period, these corporate groups generate investment incomes as well.

Timing of payments

 The timing of payments of the annual premiums is determined by the captive insurance companies. This helps the corporate groups to manage the cash flows according to the requirements of the reinsurance premium.

Tax Savings

 Taxes are deductible from these premiums immediately, which prove to be a major benefit for the cash flows.

Location of Captive Insurance Companies

There are many tax-haven jurisdictions. The location of an offshore captive insurance company depends on the following factors:-

Legislative restrictions

The operations of the captive insurance companies which are designed for the companies requesting businesses from the general public are mostly governed by many Legislative Regulations. These captive insurance companies are subjected to strict legislations in order to maintain similar standards as that of a normal insurance company for –

  1. Minimum Capital & reserve levels 
  2. Solvency tests
  3. Strict procedures of reporting
  4. Public disclosure of financial statements
  5. Investments of the reserve funds

Taxation

 Let us consider that the captive insurance company is in a taxable jurisdiction. The gross premiums received by these companies will be taxable, but deductions are allowed for the reinsurance premiums and the overhead expenditures 

If the captive insurance company is based in a certain country, then the net premium income of the captive insurance company will be free from taxes except for few withholding taxes which are imposed by the corporate groups of the home country in which the captive insurance company is based.

Exchange Control & Investment Flexibility

The insurance cost is transformed into a profitable corporate subsidiary by the help of a captive insurance company. All the accumulated net premium funds held by the captive insurance company under the control of the corporate group offer a flexible investment policy.

We at Business Setup Worldwide can help you quickly set up an offshore captive insurance company. Should you decide to set up one, contact us! We’d be happy to assist you.

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