The following is Part VI 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 will focus primarily on single parent/pure captives and how they might provide economic benefits for you or your food and agribusiness company. Part I, Part II, Part III, Part IV and Part V of the blog series are here.
This posting provides an overview of certain other considerations to forming a single parent or pure captive.
PART VI – COSTS, EXPENSES AND OTHER CONSIDERATIONS IN FORMING A CAPTIVE
As any experienced business owner, executive or manager understands, risks, costs and expenses are associated with almost every business opportunity. The opportunities and benefits that may be realized through a single parent captive subsidiary are no different; they, too, are subject to costs and expenses.
- Costs to Organize and Qualify the Single Parent Captive with the Appropriate Jurisdiction
Apart from the time spent in the initial consideration regarding whether organizing, implementing and operating a captive insurance subsidiary makes sense from a business perspective, once the decision is made to move forward, the company will incur costs, expenses and professional fees. These costs and expenses will include but will not be limited to:
- professional fees for preparing the feasibility study;
- fees of the actuary to prepare the report required by the feasibility study;
- preparation of the documents other than the feasibility study that must be submitted as part of the application to the selected jurisdiction’s captive insurance division; and
- accounting and legal fees.
Thereafter, unless the parent has experienced insurance executives and staff who can operate the captive, it will incur additional costs and expenses as it pays a “captive manager” to operate and manage the captive insurance subsidiary, prepare the financial statements and make the required annual filings and other filings with the applicable jurisdiction’s insurance regulatory authorities. The parent will also need tax professionals, accounting and some legal assistance to handle issues as they arise.
Continue Reading Using Captive Insurance to Create Value for Your Company – Part VI