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Journal of Accounting (March 2013)
For many years, large corporations in this country have enjoyed many benefits from operating their own captive insurance companies. Most were established to provide coverage where insurance was unavailable or unreasonably priced. These insurance subsidiaries or affiliates were often domiciled offshore, especially in Bermuda or the Cayman Islands. The risk management benefits of these captives were primary, but their tax advantages were also important…
JOINT COMMITTEE ON TAXATION
Under present law, the taxable income of a property and casualty insurance company is the sum of the amount earned from underwriting income and from investment income (as well as gains and other income items), reduced by allowable deductions. For this purpose, underwriting income and investment income are computed on the basis of the underwriting and investment exhibit of the annual statement approved by the National Association of Insurance Commissioners…
Changes to microcaptives may heighten appeal
Under a measure that President Barack Obama signed into law last year, microcaptives electing Section 831(b) of the U.S. Tax Code can avoid taxation on up to $2.2 million in premium income per year, indexed for inflation, effective in 2017.That compares with the current $1.2 million limit on premium income. Captives electing Section 831(b) are taxed only on their investment income, not their underwriting income…
831 (b) Micro-Captives
Just as with the mass of an iceberg, many of the inherent risks of operating a business are not readily apparent. These risks are below the surface or hidden in the depths of the balance sheet. A micro captive brings these risks to the surface by establishing a bonafide insurance company. Enacted as part of the Tax Reform Act of 1986 and amended by the Protecting America from Tax Hikes of 2015, Section 831(b) of the Internal Revenue Code allows insurance companies to elect to be taxed…