Strickland Hardee’s Caleb Cronce, audit manager, and Audrey Cook, audit associate, explore the nuances between domiciles’ regulatory environments and how market participants can optimise their captive insurance programmes
What led Strickland Hardee to specialise in providing services to captive insurance companies? What benefits do you see captives providing clients?
With increasing market costs, going captive could be a viable option for various companies looking to increase control while reducing overhead costs. One of the key benefits for transitioning to captive insurance would be personalisation. With the premiums from third-party insurers ever increasing, managing risk in-house reduces premium costs and personalises the coverage specific to the parent company’s needs. Due to the nature of captives managing risk in-house, another benefit captives provide to their parent company is higher control over claims, which grants flexibility in risk management.
You currently serve over 100 captive insurance companies across the US. What trends are you seeing in the captive insurance industry?
Captives have been growing significantly over the past few years due to the challenging insurance market, evolving to accommodate the parent cell’s needs. Increased risk prevention is a common trend, as captives across the US are identifying and addressing gaps in coverage by writing a personalised policy to mitigate risk and extend financial benefit and flexibility. Surging commercial insurance prices are forcing decision makers to develop savvy risk management plans. Captives are a great option for companies to mitigate the hardened insurance market and retain their business risks.
What are some of the biggest challenges captive insurance companies face from an accounting and regulatory compliance perspective? How does Strickland Hardee help address those challenges?
Captive insurance companies face several significant challenges from an accounting and regulatory compliance perspective. Some of those key challenges can include financial reporting, risk management and solvency, tax compliance and corporate governance.
Captive insurers must adhere to a complex set of regulations that can vary between multiple jurisdictions; compliance with these regulations requires constant monitoring and adjustment to ensure adherence. Captive insurers must produce accurate and transparent financial reports that comply with generally accepted accounting principles (GAAP) or other relevant accounting standards. This can be challenging due to the unique nature of captive insurance transactions and the need to accurately reflect risk exposure and reserves.
Additionally, captive insurers face complex tax implications in multiple jurisdictions, including transfer pricing issues, tax deductibility of premiums, and compliance with various tax regulations.
Strickland Hardee, as a specialist in captive accounting and regulatory compliance, helps address these challenges through a range of services. Strickland Hardee helps captive insurers produce accurate and transparent reports by providing accounting expertise tailored to the unique needs of captive insurance transactions.
This includes assistance with GAAP compliance and financial statement preparation.
Strickland Hardee also provides captive insurers with tax advisory services to help navigate the complex tax implications of captive insurance arrangements. This includes assistance with tax planning and compliance with relevant tax regulations. Overall, Strickland Hardee’s expertise in captive insurance management and consulting helps captive insurers overcome the challenges they face from an accounting and regulatory compliance perspective, enabling them to operate more effectively and efficiently while fulfilling their obligations to policyholders.
With the ever-changing regulatory landscape, how does your firm stay ahead of new accounting rules and taxation requirements impacting captives?
To stay ahead of new accounting rules and taxation requirements, our firm employs several proactive strategies. Our firm continuously monitors regulatory developments at both the national and international levels.
This includes staying up to date on proposed changes to accounting standards, tax laws and regulatory requirements that may impact captive insurers.
Our team actively participates in industry associations, forums and working groups focused on captive insurance and related regulatory issues. This involvement allows us to stay informed about emerging trends and regulatory developments. Additionally, we invest in ongoing training and education for our team members to ensure they have the knowledge and skills necessary to navigate the ever-changing regulatory landscape. This includes attending seminars, webinars and training sessions focused on accounting, taxation and regulatory compliance.
By employing these strategies, we can stay ahead of new accounting rules and taxation requirements impacting captives and provide our clients with timely and proactive guidance to ensure compliance and optimise their captive insurance arrangements.
Strickland Hardee has expertise across statutory accounting, financial audits, tax preparation, and other key services for captives. What is your approach to providing integrated solutions tailored to each client?
At Strickland Hardee, our approach to providing integrated solutions for each client revolves around the understanding of each client’s unique needs, goals and challenges. We start by conducting a thorough assessment of each client’s captive insurance programme, including their objectives, risk profile, regulatory environment and existing processes. This helps us gain a deep understanding of each client’s specific requirements and tailor our services accordingly. Then, based on our assessment, we develop a customised service offering that aligns with the client’s needs and objectives. This could include a combination of statutory accounting, financial audits, tax preparation, regulatory compliance, risk management, and other key services tailored to each client’s unique circumstances.
We believe in working closely with our clients as strategic partners. We maintain open lines of communication, collaborate closely with clients, and actively seek feedback to ensure that our services exceed client expectations and add value to their captive insurance programme.
Additionally, we are committed to continuous improvement and innovation in our service delivery. We regularly review our processes, adopt best practices and use technology to enhance efficiency, accuracy and client satisfaction. We also understand that the regulatory landscape and business environment are constantly evolving, which requires responsive support to help clients navigate changes, address emerging issues and capitalise on new opportunities in a timely manner. By following this client-centric approach, we ensure that our integrated solutions are tailored to meet the specific needs and objectives of each client, helping them achieve their goals and optimise their captive insurance programme effectively.
What qualities make Strickland Hardee uniquely positioned to serve captive insurance clients compared to other accounting firms?
Strickland Hardee is a smaller firm that is committed to meeting the needs of our clients through personalisation. We value each client, big or small, aiming to satisfy each of their needs. Our mission is to help clients maintain financial viability in the present, while taking a proactive approach to achieve future goals. As a firm, we provide a variety of services ranging from tax management to year-end attestation services that showcase our commitment to quality.
What are some key differences you have noticed between different domiciles’ regulatory environments?
Some of the key differences between domiciles’ regulatory environments are changes in capitalisation, taxation, fees and differences in the local captive community.
Every domicile differs in captive law, which should be considered when domiciling a captive. The minimum required surplus is the initial capital to be invested and varies from domicile to domicile as outlined by the presiding Insurance Commissioner.
Income tax rates differ across domiciles and are directly related to the captive’s total direct written premium, underwriting and investment income. Some of the captive fees include government fees and formation costs. These fees vary across domiciles, including fees related to registration, incorporation expenses and annual assessments.
The capitalisation, taxation and fees should be assessed for each domicile when forming a captive entity to adequately accommodate the parent cell.
What advice would you give to captive owners looking to optimise their accounting procedures, financial modelling and relationship with their external auditor or CPA?
For captive owners looking to optimise their accounting procedures, financial modelling and relationship with their external auditor or CPA, we would offer the following advice: understand your needs and objectives, evaluate current processes, invest in technology and automation, stay up to date with any regulatory changes, collaborate with experiences professionals, regularly review and update processes and procedures, and emphasise relationship building.
Begin by clearly defining your objectives for optimising accounting procedures and financial modelling.
Consider factors such as regulatory compliance, risk management, financial reporting and tax efficiency.
Then, constantly update and redevelop accounting procedures, financial modelling practices, and internal controls to address these objectives and adapt to changing business needs and regulatory requirements.
Explore opportunities to leverage technology and automation to improve efficiency and accuracy in accounting procedures and financial modelling.
Work with experienced professionals who specialise in captive insurance accounting, financial modelling and audit services.
Seek out firms with a proven track record of success in the captive insurance industry and expertise in relevant accounting standards, regulatory requirements and tax laws.
Also, foster open and transparent communication, as well as a collaborative and cooperative relationship with your external auditor or CPA.
