Baker Donelson discusses benefits of captive insurance companies. Its article begins as follows:
Recent IRS rulings and a U.S. Tax Court decision continue to lay a solid foundation for captive insurance companies. However, the tax requirements must be strictly followed. Below we provide an update to assist captives in achieving their tax objectives.
A captive insurance company (or “captive”) is an insurance company formed under the laws of and regulated by a state or foreign jurisdiction by a business to insure (or reinsure) the risks of that business or of related or affiliated entities. A captive can convert non-tax deductible self-insured risk into tax deductible insurance premiums while satisfying a variety of business purposes, including augmenting existing commercial coverage, providing access to the reinsurance market, and providing insurance for risks where commercial coverage costs are economically unattractive.