The following is Part II of a six-part series of blog postings regarding whether a captive insurance subsidiary or one owned by the owners or affiliates of a company may represent an effective risk management tool that also provides economic benefits. Although there are various types of captive insurance, this posting and the four to follow will focus primarily on single parent/pure captives and how they might provide economic benefits for you or food and agribusiness company. Part I of this series can be found here.

This posting discusses an alternative to ownership of the captive by the holding company itself — how a business’s owners considering implementing captive insurance as an enterprise risk management tool can also use it as an estate planning or family wealth transfer tool.

PART II: ALTERNATIVE STRUCTURE – OWNERSHIP OF THE CAPTIVE BY AFFILIATES OF THE HOLDING COMPANY

Owners of companies may find organizing and implementing a captive insurance company of which they are the owners a worthwhile strategic alternative to the extent:

  • They seek asset protection;
  • They seek an additional entity as a vehicle for additional personal wealth accumulation; or
  • They are interested in using the captive as an estate planning tool or are otherwise interested in exploring alternative family wealth transfer mechanisms.

Owners of the parent can organize a corporation or a limited liability company to qualify as a captive insurance company and to provide the insurance to the parent and the subsidiaries of the parent. Structured in this manner, it becomes an additional asset of the owner and, to the extent the captive insurance company is successful, it is a source of additional wealth accumulation apart from the parent company itself. Of course its reserves are to be used to pay claims of the operating subsidiaries of the parent company owned by the shareholders or members of the captive insurance company. However, to the extent the reserves are not used and they grow over time, the value of the captive insurance increases and the wealth of the shareholders or members of the captive insurance company increases. The owners of the captive are entitled to any dividends and distributions approved by insurance regulatory authorities.
Continue Reading Using Captive Insurance to Create Value for Your Company – Part II