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Such company is a specialized subsidiary
of a non-insurance "Parent": a parent
company, holding
or association.
Its primary goal is to improve risk management of the Parent's
business while optimizing cash flows and tax-planning
issues.
A captive insurance company (CIC) may be employed as a "straight"
insurance vehicle to insure the Parent's risks or as a reinsurance
company.
- underwrite the risks normally not insured or insured on
unfavorable terms by an external risks carrier, providing
the Parent with a customized cost-effective policy.
- be used as a means of effective control over claims costs,
moving them upward or downward where desirable
- reduce the Parent's operating
expenses
- provide tax planning elements (in some cases captive insurance
costs may be tax deductible)
- reinsure the risks underwritten by a commercial carrier,
while adjusting cash flows of the Parent
- furnish evidence of being insured required for some commercial
operations of the Parent
- legally override exchange
control restrictions when the Parent should pay premiums
for the coverage of its actual business risks
- preserve and invest the premiums received from the Parent.
Furthermore, a typical offshore CIC won't pay any tax neither
on investment earnings nor on capital, premiums, and reserves.
It is small wonder that the majority of the US business giants
listed in the Fortune
500 have captives of their own.
Useful links:
Nevis Captive Insurance Companies - principal
features
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