There is an increasing interest in 831(b) captives and cell captives, according to JLT Towner Insurance Management.
Tom Stokes, managing director and US consulting practice leader of JLT Towner, suggested that increasing risk exposures make cell captives an economical option for organisations of any size to access the Terrorism Risk Insurance Act (TRIA).
Stokes said: “Now, independent of that, middle-market companies with a variety of risk exposures are becoming more aware of captives that elect Internal Revenue Code 831(b) status, especially with the premium limit rising in 2017. The law change will automatically include many existing and planned captive structures.”
Companies who write $1.2 million or less in premiums are currently not taxed on underwriting income, however from 2017 the limit will increase to $2.2 million.
“This means many more companies will qualify to elect 831(b) status next year. It wasn’t surprising that we heard many risk managers talking about this change during the Vermont Captive Insurance Association conference [this year], just as we have heard from clients and risk managers in recent months,” said Stokes.
He added: “Many middle-market and smaller captives that didn’t qualify for 831(b) election may do so next year. The lower cost of entry with Isosceles dramatically lowers the start-up hurdle, reducing initial capitalisation requirements and ongoing costs because the cell structure has a sponsor that puts up initial capital. In more complex situations, companies might use a cell facility to access TRIA, pay for employee benefits and access global reinsurance markets.”
