Overview

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A captive insurer (or “captive”) is a special-purpose insurance company formed primarily to underwrite the risks of its parent or affiliated groups. It is quite similar to a traditional, commercial insurance company in that it is licensed as an insurance company, it sets insurance-premium rates for the risks it chooses to underwrite, writes policies for the risks it insures, collects premiums and pays out claims made against those policies.

The biggest difference between a captive insurer and a commercial insurance company is that a captive cannot sell insurance to the general public. It can only underwrite the risks of its parent organization or related entities. Another key difference is that the regulations governing captive insurance companies are typically less onerous than those regulations governing traditional commercial carriers.

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Contents

What is a Captive

Types of Captives

Tax Considerations

Domicile Choices

Captive Feasibility Study (CFS)

Steps to Create a Captive

Managing a Captive

Potential Pitfalls

Supplemental IRS Published Rulings and Guidance

Glossary