When you work with the Oxford Risk Management team, the notion of owning your own insurance company will no longer be as mysterious as you may have originally thought. Captives have withstood the test of time and they can be an effective risk management tool designed to cover real risks faced by business owners. A captive is a highly regulated insurance company, offering the potential to deliver numerous benefits and significant financial rewards, with very predictable results. When forming your own captive insurance company, the Oxford Team will be with you every step of the way and will assist you in identifying ownership structures to complement your estate planning and other needs, while also having the freedom and flexibility to make adjustments as your needs change.
There are many decisions to be made in implementing a captive insurance arrangement. It therefore is essential that you surround yourself with a Best-in-Class advisory team that will identify solutions based on your actual needs and manage your captive insurance company in compliance with regulations in your chosen domicile. Key elements of forming a captive insurance company include the documentation of business purpose and the risk management needs of the operating company. The professionals at Oxford Risk Management Group will extensively discuss the business operations and related industry exposures of a prospective company with the owner and senior leadership team, as well as the company’s CFO, independent CPA, independent risk management consultant, property and casualty insurance broker, and legal counsel. These discussions and the selection of business enterprise risks the company desires to insure are the primary requirements for documenting business purpose and risk management needs of the operating company. We will work with your team to ensure that business purpose and risk management needs are further documented in the entity formation legal work, the formal actuarial report, and in the submission package for approval by the insurance regulator in your chosen domicile.
A crucial element of forming a captive insurance company is that of economic substance. As part of the Health Care and Education Reconciliation Act of 2010, Congress enacted IRC Section 7701(o) which provides that in the case of any transaction to which the common law economic substance doctrine is relevant, such transaction is treated as having economic substance if the transaction changes in a meaningful way (apart from federal income tax effects) the taxpayer’s economic position, and the taxpayer has a substantial purpose (apart from federal income tax effects) for entering into such transaction. The Oxford captive insurance company structure is designed to assist clients in documenting the risk management needs of their operating company and their corresponding business purpose in forming the captive.
Additionally, the “safe harbor” risk-shifting and risk-distribution accomplished by the pooling arrangement should change in a meaningful way (apart from federal income tax effects) the economic position of the operating company paying insurance premiums to the captive insurance company. The captive insurance structure is highly regulated and subject to an annual independent CPA financial statement audit and an annual independent actuarial review. The annual independent CPA financial statement audit and the annual independent actuarial review are performed on a calendar year-end basis and are included services provided by the Oxford Team.