Asset Protection with Captive Insurance Companies
Any owner of a profitable business is a target for litigation. Business owners should have a plan to protect those assets, and avoid becoming a victim of the US judicial system. A CIC can be an important cornerstone to an asset protection plan, as it can safely protect assets from legal attack by creditors and predators. Many individuals own their CICs in offshore asset protection trusts. The CIC owner controls the claims process at all times, meaning that others cannot make a claim on the business’ insurance policies.
The CIC Structure
Insures the Uninsured Risks
How the Numbers Work
An Example of CIC Financial Performance with Annual Payments of $1,200,000| Year 1 | Year 2 | Year 3 | |
| Aggregate premiums paid to your CIC | $1,200,000 | $3,600,000 | $6,000,000 |
| Tax savings to your Business | $480,000 | $1,440,000 | $2,400,000 |
| Gross premiums held inside Captive | $1,200,000 | $3,600,000 | $6,000,000 |
| Returns generated from invested premiums: | ? | ? | ? |
| Amount you have gained:* | $480,000 | $1,440,000 | $2,400,000 |
*Excluding net premium investment returns, insurance losses, and CIC set-up, any losses, and maintenance expenses.
Caribbean Insurance Acts
There are various insurance acts in the Caribbean that are comprehensive pieces of insurance legislation, which set out the rules governing insurance business in and from within the respective jurisdictions. They require the licensing of all insurers and provide for various classes of insurers with deferring minimum levels of capitalization. The acts in certain regions charge the government with administering the licensing of insurers, brokers, insurance managers, etc., and, as is usual in this type of legislation, cover solvency requirements, reporting requirements, winding-up rules and enforcement procedures and penalties. In enacting these regulatory oversight rules, our jurisdictions of choice have made substantial commitments to comprehensively recognizing and regulating its insurance industry.
Main regulatory features of the Act include:
- Insurers must be licensed and must appoint a resident insurance manager
- Minimum of two directors
- Long-term protected premium accounts and Protect Cell Company provisions;
- Flexibility of allowable assets
- Annual actuarial valuation of long-term insurers
All insurers carrying on foreign (not within the particular Caribbean jurisdiction) businesses have a Class “B” license:
| Type of License | Minimum Capital | Insurance License Fee |
| Class “B” – Unrestricted (including long-term) | US$200,000 | US$2,000 |
| Class “B” General | US$100,000 | US$2,000 |
| Class “B” Association | US$100,000 | US$1,500 |
| Class “B” Group | US$25,000 | US$1,500 |
| Class “B” Single (pure captive) | US$10,000 | US$1,500 |
The minimum solvency margin for long-term insurers is equivalent to the minimum capital requirement. For all other insurers it is 20% of premium.
Optional Issues
Captive insurance management has become much more sophisticated and specialized over the last 10 years. Proper management requires expertise in insurance law, insurance company operations, underwriting, policy drafting. US tax law, accounting, and audit. A captive insurance manager should provide the following services:
Formation
- Initial Analysis and Feasibility Study
- Domicile Applications, including business plan and pro forma financial preparation
- Design and implementation of CIC ownership structure
- Coordinate initial capitalization, including brokerage accounts
- Maintenance of proper corporate records
- Underwrite and draft insurance policies
- Prepare and obtain approval for regulatory filings
- Payment of regulatory fees
- Corporate formation; payment of formation fees
- Arrange for third party insurance
- Arrange reinsurance where required
Management
- Account Manager assigned as contact point for all issues
- Prepare regulatory filings
- Ongoing work with Anguilla Financial Services
- Ongoing communication with the IRS
- CIC Accounting: Prepare quarterly financial statements, bank reconciliation, document and
- monitor account activity
- Solvency margin analysis and loss reserve analysis
- Prepare tax return for CIC
- Arrange for third-party insurance on an annual basis
- Arrange reinsurance of risks as necessary
- Monitor ongoing regulatory changes
- Consult with CIC owners regarding proper investment structuring
- Maintenance of corporate records
- Arrange and coordinate an independent audit
- Pay all regulatory and audit fees
- Annually underwrite and draft insurance policies
- Loss handling/claims processing
- CIC liquidation and winding up of activities