Once Again, Captive Insurance Companies Come Out Unscathed – Dodd-Frank Not Applicable to Captive Insurance Industry
We routinely talk with prospective business owners who tell us their business would benefit greatly by owning its own insurance company, but they are concerned that legal and regulatory changes will negate their captive in the future. This is unfortunate because owning your own insurance company – specifically, a captive insurance company, is one of the most powerful financial moves a business owner can make. Captive insurance companies are particularly effective because they provide businesses and owners with:
- Remarkable Asset Protection
- Better Control Over Risk Management
- Heightened Risk Protection
- Advantageous Tax Treatment
- Wealth Accumulation
Trends in Captive Insurance Law
Captive insurance has been a mainstay in the U.S. since the 1950s, and federal laws addressing captive insurance were formalized in the 1960s. The trend in captive insurance law since the 1960s has been to “level the playing field.” This is an encouraging trend for small and mid-size business owners who would benefit from owning their own insurance company. In the 1950s, 60s and 70s, the benefits of captive insurance were primarily enjoyed by large corporations. U.S. law has typically moved to “level the playing field” to enable smaller businesses to enjoy the same benefits as larger corporations. This was true of the “Trust Busters” around the turn of the 20th century and was also true of the Robinson-Patmon Act that made it illegal for whole-sellers to give better pricing to large retailers at the expense of smaller retailers.
Once again, the captive insurance industry shows clear signs that it is here to stay.
CIC Services, LLC works diligently to stay abreast of shifting trends, strategies and regulations in the captive insurance industry. The Vermont Captive Association recently published an article affirming that the Dodd-Frank legislation does not apply to captive insurance companies. The article states,
The outgoing Chairman of the Subcommittee on Insurance of the Committee on Financial Services in the House of Representatives has reaffirmed that the Nonadmitted and Reinsurance Reform Act (NRRA), which is part of the Dodd-Frank Act was never intended to apply to captive insurance. In a letter to the new Chairman and Ranking Member of the Committee, former Chairman of the Subcommittee on Insurance, Representative Judy Biggert wrote, “As a supporter of NRRA and an advocate for its inclusion and passage as part of Dodd-Frank, I can tell you unequivocally that the NRRA was never intended to include the captive insurance industry.”
To read the entire article, click the link below:
What Is A Captive Insurance Company?
A captive is a unique insurance company. It includes its own corporation, insurance license, reserves, policies, policyholders, and claims. It is a formal way for business owners to self-insure risk, and captives are generally formed to insure primarily though not exclusively the risks of one or more businesses owned by the same or related parties..
How Does a Captive Insurance Company Work?
A captive primarily insures its parent company or related companies. Hence, the parent company is able to purchase insurance from its captive, and it can insure risks that third party insurers will not insure or risks where third party insurance cost is unaffordable.
Some examples include (but are not limited to):
- Loss of a key account
- Loss of key personnel
- Loss of a license or certification
- Loss of a sales or distribution territory
- Loss of dealership rights
Premiums are paid from the parent company to the captive with pre-tax dollars. The captive can invest its assets mostly as its owners choose (some domiciles have restrictions).
Call us to discuss whether or not a captive insurance company or additional captive insurance company is the right move for your business.
Phone – 865- 599-6104
E-Mail – Randy@CICServicesLLC.com
Web – www.CICServicesLLC.com