Captive Insurance: Time to rethink

COVID-19 has highlighted some of the potential commercial benefits of using captive insurance and reinsurance arrangements and the important role captive insurance companies can play as a risk mitigation tool. For example, some captives are paying out claims on risks groups are exposed to such as contingency risks, given third party insurance policies could exclude claims which relate to pandemics such as COVID-19.

Captive insurance companies are insurance companies created and wholly owned by non-insurance groups to underwrite risks of the group and can be a cost-effective means of obtaining insurance. However, tax authorities often scrutinise captive insurance arrangements, particularly captives with outsourced operating models and low headcount and / or supported by onshore risk management functions. As such, it is important that the tax position is considered at the outset and is kept under review. The attached flyer outlines the key tax considerations for captive insurance, covering both operating model design and the tax treatment of insurance premiums.

Captive owners should be prepared to face increased tax authority scrutiny over the coming years as a result of the developments noted in the flyer. We have a multi-disciplinary team of actuaries, tax and transfer pricing specialists with deep experience in advising on captives across a wide variety of businesses and industries.

We can perform an initial review of your existing operating model to assess its substance and potential tax risk exposure and make recommendations in relation to a “best practice” operating model to meet your needs based on our practical experience, alongside assisting with transfer pricing documentation support.