Captive Insurer Tax Challenges

Stewart Feldman, CEO of Capstone Associated Services, says that captive insurance company taxation issues concern three areas: (1) risk transfer, (2) risk distribution, and (3) the common notions of insurance. Risk transfer is relatively easy to achieve, where one company is transferring risk to another company, from one balance sheet to another, and it is usually done between a brother-sister company or from one company to another affiliated company. Risk distribution connotes the law of large numbers and surrounds the ability of an insurance professional to anticipate losses based on a large number of occurrences or independent risks that would lead to an insurable event. The common notion of insurance concerns that the arrangement, in all respects, looks like an insurance arrangement. An insurable risk is a fortuitous risk where an event may or may not happen, and the insured wishes to provide financial coverage for the possibility of that event happening.