In 2002, the IRS made rulings (Rev. Rulings 2002-89, 90, and 91) which were to result in a cataclysmic change to the way U.S. businesses obtain insurance. These 2002 rulings essentially legitimized for tax purposes the concept of the in-house insurance company, commonly referred to as a "captive insurance company."
From 2002 to the present, the formation of new captive insurance companies for U.S. business grew by the thousands each year, to where now nearly every major U.S. company, non-profit, and even a very large number of middle-market companies have their own captive insurance company. “Captives,” as they are referred to, allow businesses the multiple advantages of retaining underwriting profits, fine-tuning their enterprise risk-management, and also often providing for better tax efficiency.
To support the growing number of practitioners who were either forming new captives for their clients, or were regularly involved with their clients' existing captives, the Business Law Section in 2011 formed the Captive Insurance Committee. Starting as all new committees do with only a small handful of members, the committee has become one of the fastest growing committees within the section, and now makes its debut with this series of articles in Business Law Today.
First, Delaware attorney Ed Ianni starts us off with a discussion of the benefits of a captive to private business owners, and how they may structure a captive to fit within their overall wealth preservation and estate planning structure.
Prof. Beckett Cantley of John Marshall Law School and tax attorney Hale Stewart then lead us through the thicket of common tax issues involving captives, including a very important discussion of the IRS safe harbor rules.
Next, general counsel for one of the largest captive management firms, Dana Sheridan, and I visit the practical factors that professionals should consider in the important decision as to the choice of domicile for a captive insurance company, including whether the captive should be domestic or foreign.
Finally, we end our debut with a collection of my own observations about this new sector, organized by my 10 worst and 10 best things about captives.
We hope that you enjoy these articles, and learn about how captive insurance companies provide daily benefit to the vast majority of significant businesses in the United States, and of their limitations. For those who might desire more, the committee will be sponsoring a presentation at the 2014 Business Law Section Spring Meeting featuring Prof. Beckett Cantley, Dana Sheridan, and tax attorney John Colvin, titled "Captive Insurance and Organizational Risk Management: Issues and Solutions."