Non-831(b)

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If a captive insurance company receives more than $2.2 million in premiums or has not elected 831(b) insurance taxation; it is considered a “regular” captive insurance company. To review, the 831(b) company will enjoy tax-free premiums and tax liability on only the investment growth. A regular property-casualty company does not have the same tax treatment.

Non-831(b) companies are taxed on the premium income received. But they are afforded a deduction for legitimate reserves, incurred- but-not-reported (“IBNR”) losses, expenses, reinsurance, claims, etc. So, the non-831(b) company can still avoid paying taxes in circumstances where its approved deductions offset premium income. For example, even though a captive charges $5 million in premiums, it will pay no taxes if it has $500,000 in expenses and IBNR and can actuarially justify reserves of $4.5 million.