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Writing Third-Party Business in a Captive

 

Captive Use Trends & Innovations | David Lang | Principal, Consulting Actuary | Milliman

 

The biggest advantage to writing third-party business through a captive insurance company is that it may provide a tax advantage compared to a captive that only writes the risks of a single parent, according to David Lang, principal, consulting actuary with Milliman. Unlike a self-insured entity or a true single-parent captive, an organization may be able to defer taxes on its unpaid claim liabilities, much like an insurance company.

There is also the opportunity to profit from the additional business. However, by participating in the underwriting risk, an organization takes on additional risk that it didn't have before.

A business should make sure that it is comfortable with the additional risk and that it understands the third-party business written in its captive. It is important for those who write third-party business through their captive to understand exactly what they are getting into.