Captive Risk Pools
Most closely held captive insurance companies owned by US taxpayers are advised to participate in a 3rd party risk pool facility to increase risk distribution and risk shifting characteristics of their captive insurance company. The reason is simple. The US tax code provisions benefiting insurance companies only apply if the company is considered an insurance company for tax purposes. The fact that the company obtained an insurance license from a domicile doe snot satisfy the IRS, but is considered as evidence the company is an insurance company.
Risk pooling however can and should have wider benefits. If the risk pool underwriting is sophisticated enough, the pool can be protected from high risk of loss yet also provide substantial improvements in the volatility of risk faced by participating captives.
To learn more about the importance of participating in a risk pool, and the advantages of doing so even if not required for US tax reporting reasons, can be explored by visiting www.CaptiveRiskPool.com
