The first ART was formed in Canton Ohio in the mid 1950s. ARTs are time tested and virtually every Fortune 500 company using an ART to manage their insurance risks, coverage and pricing. ARTs are better known as Captives. Most people have a misconception of what a captive is and how they work. In short a captive is nothing more than an insurance company. Captives underwrite, collect premium, issue policies and pay claims just like any traditional insurance company. The difference is that in our program the captive is owned by the insured. These are called Single Parent Captives. Please note that there are many different types of captives, single parent just being one of them, and the one we prefer.
Since captives are insurance companies they can share in the underwriting profit of the premium (total premium minus losses equals underwriting profit). In our program the single parent captive can recoup from 10% up to 50% of the underwriting profit.
In 1986 Congress added to the IRS tax code a provision for captives to recoup underwriting profit at a zero tax rate. The single parent captive simply selects an 831 (b) tax designation and all of the underwriting profit, up to $2.3M per year is tax free. Obviously, any funds generated as interest income on those funds are taxable against the captive and when dividends are issued to owners, the owners are responsible for the dividend or long term capital gains tax of between 15-20%. The10 year average return for a captive is in excess of $8.5M.
The IRS is very clear that the sole purpose of a single parent captive cannot be the tax advantages. Generally, this is not an issue because a captive provides many other advantages for the parent insured. Control over coverages, language, risk management, claims handling and pricing are all added advantages a captive provides that are just not available in the traditional insurance model.
Please contact us to answer any questions you might have or to obtain a quote about our Bundled Single Parent Captive Program. We have included some frequently asked questions for you below.