July 2013

Occasionally, I am asked if I think the 831(b) tax election for captive insurance companies will be eliminated.  While I don’t have a crystal ball, I really see very little reason for Congress to change the law regarding small insurance companies.  And, the recent news flurry surrounding Apple’s tax avoidance strategies caused me to ponder the question a bit this week.  After doing so, I think the likelihood of changing the tax code for captive insurance companies is even more remote.  The tax revenue (if any) avoided by captive insurance companies is a micro-peanut compared to the taxes avoided by Apple.  Furthermore, Apple is just one company.  There are many other large corporations that reap large profits and employ similar tax avoidance strategies.

Recent reports about Apple’s incredibly low corporate tax rates suggests that, pound-for-pound, Apple’s lawyers are for more valuable than Apple’s programmers.

Tennessee Announces Its 20^th Captive Insurance Company

The great State of Tennessee recently announced that it has licensed its 20^th captive insurance company (CIC.  This is solid progress toward the goal established by Governor Bill Haslam of licensing 30 CICs in Tennessee 2013.   Governor Haslam is widely considered to be “pro-business” and he has stated his conviction that a thriving captive insurance industry is good for Tennessee, its businesses and Tennessee workers.  Captives can free up business capital to support business growth.  The Haslam administration clearly views CICs as a means for Tennessee businesses to reduce the impact of rising insurance costs, increasing regulation and rising taxes to their bottom line.  The result is more business capital (wealth) in Tennessee businesses that can be invested to grow and create more jobs.

This Is Not Your Father’s Captive Insurance Industry

Tennessee’s success is a microcosm of the growing CIC industry and it follows a 30 year trend characterized by increasing

If State Farm Were a Business Owner, It Would Enjoy a Bounteous Retirement.

Pause for a moment and imagine that State Farm Insurance Company is an individual business owner.  If State Farm had terminated all of its insurance policies on December 31, 2012, what sort of retirement would he or she enjoy?  State Farm, All State, New York Life, National Life, Prudential, USAA, Liberty Mutual, Farm Bureau and most other insurance companies would enjoy a bounteous retirement.  Why?  Because successful insurance companies accumulate significant reserves to insure the risks for which they issue policies.

CIC Services, LLC recently attended the Captive Insurance Companies Association (CICA) Conference in Palm Springs, California as part of our on-going efforts to stay abreast of shifting trends, strategies and regulations in the captive insurance industry.  The conference was thematically focused on the future of the captive insurance industry.  We attended multiple presentations and workshops covering a wide range of topics, including demographic trends, risk management, medical malpractice, preparing witnesses in a lawsuit, reinsurance, captive investments, regulatory trends, and the creative employment of captive insurance companies.

Creative Uses of Captive Insurance

CICA 2013 included a session titled “Creative Uses of Captive Insurance.”  One of the presenters was Dan Schock of GMAC.  GMAC is a top 20 U.S. writer of automobile insurance with over $1.3 billion of premium written in 2012.  GMAC provides cover to private passenger autos, recreational vehicles and motorcycles.

It was no surprise that GMAC owns and utilizes captive insurance companies.  What was surprising was that the first reason provided why GMAC utilizes captive insurance companies was the role captives play in agency development and retention.

Captives Can Be Utilized to Reward and Retain Talent?