We provide our clients with unique risk management tools & support designed to help them control their costs with private insurance companies. With extensive experience, our team of dedicated professionals can help deliver the stability and predictability you need in order to lower costs and drive profits. With creative concepts and an intuitive grasp on our clients’ goals, we design policies that help you strengthen your position in the present and protect you as you head into the future.

1. Introduction to
Captive Insurance
Companies
A Risk Management Strategy

2. What is a captive insurance company?
• A captive insurance company insures the “other risks” of a business.
• Current casualty insurance coverage for:
 Buildings
 Contents
 Inventory
 Business liability
 Other coverage
• Other risks that are not insured can include:
 Deductibles on current coverage
 Exclusions on current coverage
 Loss of key vendor
 Loss of key employee
 Loss of key customer
 Dispute resolution
 Employment practices

3. Business Insurance Coverage
• Insured risks include a portion of a businesses risks:
 Umbrella
 Retention
 Workers Compensation
 General Liability
 Excess
• Other exposed risks that are not currently insured:
 Deductibles and exclusions on current coverage
 Operating risks regarding key employees and vendors
 Cyber risk
 Credit default
 Dispute resolution
 Litigation defense

4. Insuring “Other” Business Risks
• Forming a captive insurance company (CIC) offers solutions for covering
uninsured risks for many companies.
 Actuarially determines insurable risks and prices the risk.
 A CIC is formed in a state or territorial domicile that is favorable for the
business operation.
 A CIC provides additional coverage and is not intended to replace current
property and casualty coverage.
 A CIC is eligible for up to $1.2 million in annual insurance premium [IRC
831(b)].
 A CIC is required to be professionally managed to ensure regulatory and IRS
compliance.
 Captive Insurance Group, LLC provide professional services for ongoing
management of captive insurance companies.

5. Forms of Coverage
• Comprehensive Dispute Resolution Insurance Policy
• Cyber Risk Commercial Insurance Policy
 Facilities
 Technology
 Corporate Activities Regarding Cyberspace
• Comprehensive Business Interruption Insurance Policy
 Business Income Loss Due to Changes in the Physical Environment
• Comprehensive Business Interruption Insurance
 Business Income Loss Due to Loss of Key Personnel
 Loss of Key Corporate Relationships
 Regulatory Change

6. Tax Treatment
• History of IRC 831 (b)
• Issuance of revenue rulings providing safe harbors in 2002:
 Revenue Ruling 2002-89
 Revenue Ruling 2002-90
 Revenue Ruling 2002-91
• Multiple captives is possible when sufficient risks exist and
control group rules can be met.

7. Tax Treatment of Distributions
• Tax effects on the distribution of money out of a captive can be tax
favorable.
• In most cases dividends paid out of a captive insurance company will
be taxable at a 20% rate under the current American Taxpayer Relief
Act of 2012.
• A long-term exit strategy may involve a tax liquidation of the captive
insurance company, creating a long-term gain treatment on the stock
of the insurance company if the holding period for LTCG treatment is
met.

8. Revenue Ruling 2002-89
• More than 50% of exposure is derived from unrelated parties.
• Accomplished through the use of a risk pooling arrangement.
• Client exposure to the risk pooling arrangement is limited through
stop loss agreements within the pool and through underlying
reinsurance arrangements.

9. Revenue Ruling 2002-90
• Risk shifting and risk distribution requirements are satisfied if:
 Twelve Brother/Sister subsidiaries are in the corporate structure.
 There is no single Brother/Sister subsidiary than has more than 15% nor
less than 5% or the risk.

10. Estate Planning with a Captive
• A captive insurance company can provide estate planning strategies
for:
 Principals
 Businesses
 Family
 Shareholders
• A captive insurance company can be owned by:
 Shareholders
 Estate Plan Trusts
 Key Employees
 Family

11. Captive Ownership Qualification
• Any trade or business with ordinary taxable income can have a
captive.
• Businesses with identifiable and insurable risks that warrant
significant premium levels should consider a captive.
• Businesses with consistent cash flows can benefit with a captive
insurance company.
• Ownership of a captive insurance company requires the basic
understanding that it will operate in a highly regulated industry.

12. Establishing a Captive
• A copy of the last two years of the corporation(s) federal income tax
returns is required.
• The corporation will provide an organizational chart showing entities
and ownership.
• A declaration page of current insurance coverage purchased from
commercial insurance carrier is provided by client.
• A discovery meeting with client and actuarial firm will identify
uninsured risks in the business operation.

13. Captive Insurance Group, LLC
• Work with the clients professional advisors to determine the right solution
for risk management of their business operation.
• Engage independent actuaries to determine the policy design and
premium pricing.
• Arrange the risk pooling arrangement for IRS compliance.
• Advise client on domicile selection.
• Establish the captive insurance company.
• Manage the regulatory interface and approval ensuring on-going
compliance.
• Manage the captive insurance company for the client.
• The management of the money within the captive is handled by the
client’s wealth advisors.

14. Legal Disclosure
The information contained herein is for educational use and is not a substitute for competent
legal, tax and business advice as it relates to the formation and ongoing operations of a captive
insurance company.
IRS Circular 230 Required Notice—IRS regulations require that we inform you as follows:
Any U.S. federal tax advice contained in this communication is not intended to be used
and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue
Code or (ii) promoting, marketing or recommending to another party any transaction or
tax-related matters.
Financial examples included in this information are generic and are not specific to a particular
clients risk management profile or financial situation.

15. Contact Information
Captive Insurance Group, LLC provides Domestic and U.S. Territory captive
management services.
Charles H. Spitzer, CPA
President
817.793.6522
Cspitzer@captiveinsuranceusa.com
www.captiveinsuranceusa.com