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Captive Reinsurance

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Captive Reinsurance and Captive Reinsurance Pools provide Key Insurance & Tax Benefits Captive Insurance Risk Pools, Captive Risk Pools, Reinsurance for Captive Insurance Companies , Reinsurance Captives

WMS Captive Reinsurance Capabilities

WMS has created a Captive Reinsurance Pool that allows participating Captives to exchange a portion of the insurance premiums they receive from their affiliates (related risks), in return for an equal dollar amount of premiums from non-affiliates (unrelated risks). Only risks which are "homogenous" or similar in terms of line, limit, layer, loss history and policy form can be exchanged. Since the WMS Captive Reinsurance Pool has many participating Captives, it contains a substantial volume of unrelated "homogenous" risks. Captive Insurance Companies that participate in the WMS Captive Reinsurance Pool achieve important "risk shifting" and "risk distribution" benefits by exchanging a relatively small number of their homogenous related risks in return for a dollar equivalent share of a large number of homogenous unrelated risks from the Reinsurance Pool.

The WMS Captive Reinsurance Pool also allows participating Captives to satisfy IRS requirements regarding the amount of "risk shifting" and "risk distribution" a Captive must have in order to be treated as an insurance company under section 831 for federal tax purposes and to permit the tax deductibility of all premiums paid to the Captive by its affiliated insureds. These IRS requirements establish the minimum acceptable level of unrelated risks which a Captive must have as measured by a percentage of its premiums and/or by its number of insureds, in order to be treated as an insurance company for federal tax purposes. For greater detail, please see the section on IRS Captive Insurance Tax Rulings and guidelines.

WMS provides Captives Access to Reinsurance Pools with Homogenous Risks.

By participating in a Captive Reinsurance Pool, your Captive will achieve critical risk shifting and risk distribution benefits that are essential to its ongoing operation. Only by participating in a large unrelated risk pool can your Captive reduce the size and variability of its long term loss costs. Additionally, the IRS Safe Harbor guidelines specifically require that at least 50% of your Captive's homogenous retained risks must be unrelated risks in order to qualify as insurance and thereby receive favorable tax treatment. The IRS considers homogenous risks to be risks which are essentially similar in terms of the line, limit, liability and premium amount.

At WMS, we have established relationships with International Reinsurers who have designed homogenous reinsurance pools that will satisfy all of your Captive's risk shifting and risk distribution needs. By participating in one of these reinsurance pools, your Captive will be able to achieve the 50% unrelated risk requirement on a homogenous line specific basis, which is required by the IRS. The cost of participating in one of these reinsurance pools is very affordable and your Captive will be able to access any of these pools as soon as it is incorporated and licensed in whichever Domicile you select. Click on the Flow Chart link to see how Reinsurance works in conjunction with a typical WMS Captive.

Captive Reinsurance Treaty Support.

Captive Reinsurance Agreements take many forms and have a myriad of terms and conditions specific to the reinsurance world. Our team of experienced professionals will help you identify Reinsurers who use Reinsurance Agreements (Treaties) which protect your interests, as well as their own.

Captive Reinsurance Benefits

Increased Profits due to wholesale vs. retail premium rates.
Improved Earnings Consistency due to less variation in annual claims costs.
Increased Return on Captive Capital due to Increased Captive Capacity without additional Capital Contributions.
Full Tax Deductibility of Premium Payments by satisfying IRS Captive Insurance Revenue Rulings regarding the minimum acceptable level of unrelated risks a Captive must possess, the Premiums paid by related insureds can be deducted pursuant to IRC section 162 as business expenses.
IRS Tax Treatment of Captive as an Insurance Company pursuant to IRC section 831 can usually only be achieved by using sufficient Homogenous Reinsurance to satisfy the IRS Safe Harbor Rules concerning the Taxation of Captive Insurance Companies. Captives that fail to meet these IRS Safe Harbor Rules are not entitled to make the IRC section 831(b) election (a.k.a. the Small Insurance Company Tax Election) which allows a Small Insurance Company such as a Captive Insurance Company, to receive up to $1.2 million per year in premiums - Tax Free!

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