Key Points / Benefits of an 831(c) Micro-captive

Summary: 831(b) micro-captive members share in the underwriting profits and investment income. Captive members have a direct handle on business risks and greater control and management of claims. A micro-captive offers flexibility in policy design, coverage, and premium payment schedule. But let's look at three benefits often recognized and acted on by savvy business leaders...

Micro-captives offer alternative Risk Transfer Strategies Traditional risk transfer techniques involve purchasing conventional, guaranteed-cost insurance policies. Although this provides effective risk transfer, it offers little control over your claims and rising premium costs. Alternatively, 831(b) Micro-captives are an effective, efficient and tax-advantaged alternative.

MICRO-CAPTIVE BENEFITS

• Greater handle on business risks

• Greater control and management of claims

• Reduced expenses

• Customized coverage not otherwise available in the standard market

• Enhances and integrates with existing insurance policies to fill any gaps in coverage

• Premium treated as a business expense...not profit or income

• Facilitates recapture of premiums not used to pay claims

WHAT IS A MICRO-CAPTIVE INSURANCE COMPANY AND HOW DOES IT WORK? A Micro-captive is a captive insurance company operating with an annual gross premium up to $2.3 million (adjusted for inflation). In the United States, qualified under Internal Revenue Code 831(b), a Micro-captive will pay tax only on investment income and not on underwriting profit. The underwriting profit can either be returned as a dividend (distribution), loaned to borrower(s) or subject to limitations prescribed by the IRS, remain in the captive as surplus. The Micro-captive must qualify as a bona fide insurance company and serve a business purpose.

IRS SECTION 831(b) PROVIDES THAT:

• Insurance companies with less than $2.3 million (adjusted for inflation) of annual premium (as adjusted for inflation) pay $0 income tax on insurance profits.

• Investment income is taxed as income to C-corporation

• 831(b) structures are best developed leveraging a licensed, third party Actuary (which typically builds a comprehensive Actuarial Report helping to build policy/premium)

TAXATION (Consult with your Tax Advisor):

• Premiums are deductible when paid under IRS Sections §162 and §212

• Income tax on investment income only

• Minimum premium taxes

• Dividends are taxed as qualified dividends

• Termination surplus are taxed as capital gains

IS AN 831(b) MICRO-CAPTIVE SUITABLE FOR YOU? To help determine if a micro-captive is right for you, Reinsurance Specialties will perform a full review (feasibility study) and actuarial analysis of your current business risks and/or your current program (including incurred and realized claims). Our subject matter experts - many with 30 years of professional experience - are happy to assess the value of these powerful and popular business instruments surrounding your your business.

MICRO-CAPTIVE INSURANCE COMPANY COVERAGE AND POLICIES The insurance in a micro-captive is customized coverage designed to expand, complement, and close gaps in existing insurance policies. Said another way, micro-captives can help business leaders insure 'under insured' risks and 'not insured' risks.

EXAMPLES OF MICRO-CAPTIVE COVERAGE:

Everything a Business Currently Self-Insures:

• Warranties

• Deductibles

• Losses in excess of traditional limits

• Environmental Liability

Loss of Income as a Result of Insurable Risks:

• Losing key employee/salesperson

• Loss of license/professional risks (professionals)

Loss of a Key Contract Resulting from Insurable Events:

• Weather

• Contractor/Vendor failure

Loss from existential Events:

• Terrorism

• Pandemic (business interruption)

Liability Defense Expenses:

• Employee lawsuits – sexual harassment, wrongful termination, discrimination, etc.

• Professional claims

• Medical Malpractice

To learn more about setting up a captive insurance company, contact us today. At Reinsurance Specialties™, we help businesses leaders mitigate business risks, adjudicate claims, protect assets and build wealth through tax-advantaged premium.