A New Stage for Captive Insurance

By Shelly Duhaime, VP and Captive Practice Leader at NFP.

Captives structured for their intended purpose offer a corporate insurance solution that can turn a top line balance sheet expense into a top line balance sheet profit.

Whether you make widgets or build buildings, anything that has a dollar-for-dollar impact on net income is worth exploring — captive insurers have long been a potentially high-impact avenue for tackling insurance.

Last Year’s Challenges

Those of us in the captive industry believe 2018 represented one of the most challenging periods for captive owners and providers, with the efforts of the IRS to discourage small captive ownership taking a spotlight.

The small captive structure (tax code 831B) saw significant rulings on risk pools to share and spread risk for premium deductibility would be treated, although risk spreading, and pooling arrangements are not exclusive to small captive structures and have been a practice of the industry for decades.

Tax code change has had an impact on the 953D election for offshore programs. Many captive owners are reviewing domicile choices both on and offshore which was brought on by the 2018 tax code change and its impact on the 953D election for offshore Programs. This has led to many US domiciles offering “Tax Holiday” for those offshore Captives repatriating to US domiciles.

This becomes critical when considering the third major impact of 2018—the consolidation of brokers and captive managers, especially those which are publicly traded with incentives to support sister operations. Many of these providers with huge offshore operations including major investments in rent-a-captive facilities. All of this has led providers to re-evaluate how lucrative the management segment of the captive business can be.

Evaluating and Moving Forward

As we move past this policy change, it’s appropriate for captive owners to conduct an impartial evaluation of their existing 831B, Pure and Group Captive participation to determine the best ultimate structure, how reasonable a provider’s fee is, and which domicile is most beneficial (on or offshore). If your evaluation shows that change is needed, you’ll have to devise a strategic outline for the future.

Unfortunately, with all the upheaval resulting from major consolidation, captive owners trying to respond to tax changes are left wondering where to turn for impartial guidance. It’s vital to find an agnostic partner to conduct unbiased evaluations and assisting with captive restructuring.

At NFP we are dedicated to helping organizations configure alternative risk solutions that align with an organization’s corporate goals and strategies. That may mean captive structure, high deductible or retrospective rating plans, or even a guaranteed cost plan.

Of equal importance, captive owners cannot take their eye off the ball. It’s involved work but failing to stay engaged with your captive can and will eventually lead to dismal results for any risk management program.

At NFP we are proud of our work auditing loss control practices and claim management practices of your claim portfolio. We work diligently analyzing data to identify claim trends, structure flaws, provider abuses, recovery opportunities, and loss prevention accountability protocols.

Ultimately our job goes far beyond advising structure, negotiating a re-insurance agreement or placing a policy. For NFP it’s also about advocating the best possible outcome of your claim portfolio while harmonizing data to identify impactful loss prevention tactics. We can help support our clients in executing a risk management strategy with measurable, impactful results and the right structure.

Visit NFP.com to discover how NFP empowers clients to meet their goals.

About NFP 
NFP is a leading insurance broker and consultant that provides customized property and casualty, corporate benefits, retirement, and individual solutions through its licensed subsidiaries and affiliates. NFP enables client success through the expertise of over 5,100 global employees, investments in innovative technologies, and enduring relationships with highly rated insurers, vendors, and financial institutions. NFP is the 5th largest US-based privately-owned broker, 6th largest benefits broker by global revenue and 7th best place to work in insurance (Business Insurance); 10th largest property and casualty agency (Insurance Journal); and 12th largest global insurance broker (Best’s Review).