Increase your property/casualty sales by creating agency-owned captives

By Andrew Barile

Andrew Barile Consulting Corporation

The property/casualty retail insurance producer can increase their sales and create another profit center, the small and medium business captive -- commonly referred to as the 831(b) captive.

Congress created a special tax election that benefits captives that assume no more than $1.2 million in premium annually. Captives owned by retail insurance agents qualify under IRC 831(b) do enjoy tax free underwriting profits.

The benefits of an agent-owned captive:
  • Estate planning: Profits accumulated in the agent owned captive can accrue for the benefit of the sons and daughters of the insurance agent owner.

  • Investment income: Funds held in reserve are invested and general profits to the agent owner.

  • Carrier supported: More and more insurance companies are "fronting" for insurance agent owned captive insurance companies.

  • Tax benefits: The underwriting profits of an agent owned captive, of this size, are tax exempt.

  • Manuscripted insurance coverage: The agent owned captive can provide coverage that is unavailable or uneconomical in the commercial market.

  • New profit center: In addition to commission income, the retail insurance agent now owns an insurance company to create new insurance coverages (i.e., insuring the deductible under the agents errors and omissions policy).
The captive insurance world continues to grow with over 5,000 captives: group association captives, protected cell captives, rent-a-captive, risk retention groups, single parent corporation captives, the small captive (831(b)) all make up this growing universe.

Agent owned captives can cover:
  • Manuscripted coverage
  • Employee benefits
  • Life and health
  • Personal lines
  • Professional liability
  • Workers compensation
  • Warranty and surety
  • Ocean marine
  • Inland marine
  • Motor truck cargo
  • Marine and transit
  • Non-standard auto
  • Homeowners
Domiciles for agent-owned captives like the U.S. Virgin Islands (St. Thomas), BVI, Cayman Islands, Nevis, Washington, D.C., Bahamas, Anguilla, are all actively soliciting the agent owned captive.

Finally, the SMB (831(b)) can be domiciled onshore or offshore as the captive is a U.S. taxpayer. The SMB captives can be owned by the individual retail insurance provider.

Insurance agent owners need to contact their strategic advisory director to explore and implement the retail insurance agent owned captive insurance company.

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