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The captive insurance company (hereinafter called ‘captive') is a vehicle, which offers considerable advantages for corporate groups to manage and fit their insurance to their business' needs, for example:
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Risk retention, customising the insurance coverage. Where the commercial market is unable or unwilling to provide coverage for certain risks, or where the prices quoted are seen as unreasonable, a captive may provide the cover required. |
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Lower insurance costs. Retaining the profit within the corporate group rather than see it go to an outside party, and reducing insurance costs by charging a premium that more accurately reflects the parent company's loss experience.
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Tax advantages. The premiums and investment income of the captive insurance company are retained within the corporate group and, where the captive is domiciled, e.g. Mauritius, that investment income may be untaxed. However, the tax considerations in forming a captive will depend on the domicile of both the parent company and the captive. |
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Cash flow. Being able to offer a more flexible premium payment schedule, thereby offering a direct cash flow advantage to the parent company. |
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Access to the reinsurance market. The reinsurers, operating on a lower cost structure than direct insurers, are the international wholesalers of the insurance world. The captive insurance company has direct access to this reinsurance ‘wholesale' market, and can therefore be more cost effective by its own retention levels, and structure its program with greater flexibility. |
Integration of a captive as part of an overall tax planning strategy is a complex subject. Professional, legal, and tax advice are essential. A captive insurance company must obtain a licence to conduct captive business. Turnstone provides such services.
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