This document discusses captive insurance companies, which are insurance companies formed by businesses to insure their own risks or the risks of affiliated businesses. Captive insurance companies allow businesses to insure risks that are not covered by traditional commercial insurance, retain underwriting profits, take advantage of tax incentives, and provide asset protection and estate planning benefits. The document outlines how captive insurance companies work, the types of businesses that may benefit from them, requirements for legitimate captive insurance companies, and examples of policies that could be issued by captive insurers for different types of businesses.

1. CAPTIVE INSURANCE COMPANIES
• Many Benefits for Middle Market Business Owners & Their Trusted
Advisors

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What is a Captive Insurance Company
• An Insurance Company formed by a business to insure:
– its risk
– or the risks of related or affiliated businesses

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Captive Insurance Companies
– Companies are exposed to risk…
– … a lot more risk than they think!

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…and your commercial insurance
program will only address a fraction of
the risk you are exposed to…
…the majority of your risk is un-
insured or under-insured.

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Small Captive
• 90% of Fortune 1000 Companies have one or
more captives to augment their commercial
insurance program
• Generally used to insure under- or uninsured
low frequency, high impact risks
• Administrative Actions • DIC Liability and Property
• Cyber Risk • Employee Fidelity
• Loss of Key Employee • Loss of Key Contract
• Employment Practices Liability • Reputational Risk
• Wage and Hour Liability • D & O Liability

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The Benefits of Forming a Captive
• Address UNINSURED RISK in the Business
• Retain UNDERWRITING PROFITS
• Take advantage of powerful ASSET
PROTECTION and ESTATE PLANNING
• Utilize up to $1.2M TAX INCENTIVE annually to
fund for possible losses

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Who Is It For?
• Most closely held businesses that have:
– Strong cash flow
– Significant fortuitous risk
– A desire to create a new profit center
• Construction Companies • Distribution and Logistic Companies
• Finance • Manufacturing Businesses
• Hospitality • Real Estate Development
• Physician Groups • Retail
• Restaurants • And many others…

8. How does it work?
Risk Management Analysis
• Detailed review and analysis of
business operations
• In-depth review of existing
insurance program
• Recommendations for CIC
program based on a feasibility
study and third party actuarial
analysis
Trust(s)
General Ledger – Widget Corp.
Description Debit Credit
Insurance
Premium
Expense
General Ledger – CIC
Description Debit Credit
Premium
Income
(non-taxable)
$1.2M $1.2M
CIC
Owner(s)

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Model Assumptions
• $1.0M Annual Premiums
• Federal Income Tax 39.6%
• Federal Capital Gains Tax 23.8%
• State Tax 5.80%
• Gift and Estate Tax 40%
• Average annual costs for captive: $78,000

10. Premiums
Net Income
Paid Losses
Captive Expense
Pre-Tax Earnings
Taxes: Federal
State
Net Income
Estate/Gift Tax
Capital Gains – Liquidation
Proceeds to Heirs
$ 1,000,000
$ -
$ 50,000
$ 950,000
$ 78,000
$ 872,000
$ -
$ -
$ 872,000
$ -
$ 258,112
$ 613,888
$ -
$ 1,000,000
$ 50,000
$ 950,000
$ -
$ 950,000
$ -376,200
$ -55,000
$ 518,700
$ 207,480
$ -
$ 311,220
Status Quo Captive

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Requirements
• To be considered a LEGITIMATE
INSURANCE COMPANY
– there must be a BUSINESS PURPOSE
– as well as RISK SHIFTING
– and RISK DISTRIBUTION

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Putting It All Together
• Feasibility Study
– Develop complete Risk Management Profile
– Determined beneficial Coverages
– Actuarial Analysis
• Formation
– Select Domicile
– Form Entity
– Apply for License
– Select Financial Institution
• Operation
– Turnkey Management Services provided by River Oak Risk
– Client Online Portal Access to all relevant information

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Issues
• Real Insurance/Real Premiums
• Onshore v. Offshore
• Loan Backs to Operating Business
• Purchase of Life Insurance
• Sufficient Capital
• Submission of Claims

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Import/Export Firm
Revenue $42M
Employees 42
Premium $945,162
• Policies Issued by CIC – 11, including;
– Intellectual Property
– General Liability – Excess
– Business Interruption – Supply Chain
– D&O
– Cyber Risk
– Business Interruption – Loss of Key Contract

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Heart and Vascular Surgical Practice and Affiliated
Businesses
Revenue $24M
Employees 27
Premium $706,870
• Policies Issued by CIC – 11, including;
– Physicians Professional Liability – Excess
– HIPAA Liability
– Employment Practices Liability
– Business Interruption – Supply Chain
– Voluntary Product Recall
– Reputational Risk
– Cyber Risk

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Commercial Construction Firm
Revenue $58M
Employees 175
Premium $1,165,541
• Policies Issued by CIC – 14, including;
– Strike Liability
– DIC – Liability
– Inland Marine
– Legal Defense
– Wage and Hour

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Financial Service Firm
Revenue $41M
Employees 140
Premium $691,780
• Policies Issued by CIC - 10, including:
• Administrative Actions
• Cyber Risk
• Reputational Risk
• Regulatory Risk
• Cyber Risk
• Employee Fidelity

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Ph: 404.902.5738
Email: info@riveroakrisk.com
Website: riveroakrisk.com
DISCLAIMERS:
•The information contained in this presentation is for illustration purposes only and not intended to constitute formal tax or legal advice.
•The rules imposed by IRS Circular 230 require us to state that, unless it is expressly stated, any opinions expressed with respect to a
significant tax issue are not intended or written by the practitioner to be used, and cannot be used by the recipient, for the purpose of avoiding
penalties that may be imposed on the recipient or any other person who may examine this correspondence in connection with a Federal tax
matter.