10 January 2017. If you would like to more effectively manage your company’s risks, looking into captive insurance options may be particularly beneficial, including forming a micro captive insurance company to cover a portion of your company’s risks. Smaller insurance companies with annual premiums under $2.2 million in 2017 (adjusted for inflation), may qualify as a micro captive and only be taxed on net investment income at the captive level. However, there are other tax qualifications that must be met in order to form a micro captive.
Qualification as an insurance company – For tax purposes, your captive must qualify as an insurance company. This means that your captive must be operated and regulated as a real insurance company, with actuarial/underwriting premium support, and it must have the tax characteristics of risk shifting and risk distribution. There are also minimum capital requirements.
Pay taxes in U.S. – Your captive must be a United States taxpayer; this means that your captive’s domicile must be in the U.S., or it must elect and qualify to be taxed as a U.S. insurer if it is domiciled offshore.
Diversification requirements – Either 1) No more than 20 percent of the net written premiums (or, if greater, direct written premiums) of the captive is attributable to one policyholder (related entities considered one policyholder), or 2) No spouse or lineal descendant can own (directly or indirectly) more than two percentage points in the captive than in the underlying insured business.
A micro captive can write custom insurance policies that fit the specific needs of the insured entity. If you believe your company would benefit from establishing such a captive and would like more information on micro captives, Captive Resources has the services you need; please contact Ernie Achtien at email@example.com or Amy Lewis at firstname.lastname@example.org.