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Captive Insurance 101

A "captive" is a property and casualty insurance company specifically established to insure the risks of an associated business. Owning your own captive insurance company comes with advantages that help you gain better control over your business’s risk management, earnings, and tax planning. Conventional insurance policies often limit or exclude coverage for certain inherent operational risks.

With captive insurance, these risks can be written right into the policy, free of vague or ambiguous language. Under IRC 831(b), middle market organizations can take advantage of both the primary benefits of captives, including tailor-made risk coverages and secondary benefits, such as improved tax planning. Capstone is the leading alternative risk planning company for the mid-market and we’re continuing our 17-year trend of growth and leadership in the industry. While other captive insurance managers disclaim tax and legal services, we offer a comprehensive alternative risk financing program in collaboration with The Feldman Law Firm LLP. We invite you to explore all the benefits of captive insurance and the turnkey services we provide.
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Important News You Should Know About

Forming a CaptiveWhy Form a Captive Earlier in the Year?

New Services from Capstone Associated, Houston TXJune 25, 2015 (Houston, TX) - Time is short to design, form, and implement captive/alternative risk planning with tailored coverages for 2015. These regulated insurers usually take 2-4 months to properly implement. Closely-held middle market businesses that form captives operate in a wide variety of industries, including manufacturing, fabricators, transportation, distribution, construction, healthcare, and retail. These businesses usually have risks that are either uninsurable commercially, too expensive in the conventional markets, or unreliably offered.

First and foremost, a captive is an insurance company, underwriting property and casualty risks. A captive allows the pre-funding of future losses on a tax-advantageous basis. Additionally, a captive insurer provides other planning benefits, such as secured lending, are all in support of the underlying insurance function.

Now is an ideal time to explore the benefits of forming a captive. For more information, please contact Lance McNeel, CPCU, ARM, and Vice President of Business Development at 800.705.4014.

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captive insurance

Forming a Captive Early Has Powerful Benefits

June 12, 2015 (Houston, TX) - Alternative risk and tax planning done early in the year leaves more time to design and implement tailored insurance coverages, which can only begin once the policies are issued. In turn, policies are only issuable following the application to form an insurer which itself follows the insurer's capitalization and licensing. Thus, fourth quarter transactions are more difficult.

Clients interested in supplementing their commercial insurance coverages with a captive have the unique advantage of writing broad policies paid on a tax-deductible basis to their captive insurance company which in turn finances future losses. Factors such as claims history and anticipated losses, uninsured but insurable risks, investments including secured loans from the captive to the operating company for business-related purposes, and even prospective dividends at favorable tax rates are considered when assessing an alternative risk program.

Capstone is the premier captive insurance planning company in the United States, working with middle market businesses across various industries, including construction, transportation, energy, and manufacturing.

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Blue Bell Ice Cream Captive InsuranceHow Blue Bell Could Have Avoided 2850 Layoffs with a Captive

May 20, 2015 (Houston, TX) - The Wall Street Journal reports that family owned Blue Bell Creameries LP has laid off 750 full-time and 700 part-time employees, and has put another 1,400 on a partially paid furlough. Blue Bell has also reduced salaries for its remaining staff. These actions come after a voluntary recall of its products following its ice cream being linked to a listeria outbreak that resulted in three deaths and additional illnesses spread across several states. Read the full story here.

Product recall insurance written under a captive insurance arrangement would have mitigated the costs by reducing out of pocket expenses for these unexpected losses. This is an ideal use of a captive insurance arrangement. An alternative risk management program which includes a captive is a proven strategy for mitigating these types of risks. In affiliation with The Feldman Law Firm LLP, Capstone has implemented tailored risk programs across many industries, including in the food manufacturing industry, over the last 17 years.

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Captives in the IRS' Dirty Dozen List of Abusive Tax Schemes? Get the Facts
February 10, 2015 (HOUSTON, TX) - In the first quarter of each year, the IRS increases the volume of its press releases in a thoughtfully designed program to spur taxpayer compliance with our income tax system. This is a well-reasoned effort by the IRS.

Gallagher Captive Manager Artex discloses it's subject to IRS probe
Artex Risk Solutions Inc., the Bermuda-based captive management subsidiary of insurance broker Arthur J. Gallagher & Co., has confirmed that it is involved in an Internal Revenue Service probe into captive insurers formed under 831(b) of the Internal Revenue Code.

September 10, 2014 Federal Court Opinion Ordering Artex's Compliance with IRS Subpoena
The Internal Revenue Service (IRS) is conducting an investigation of Respondent Artex Risk Solutions, Inc. (Artex). The IRS is allegedly
examining Artex’s role in transactions involving captive insurance plans under 26 U.S.C. § 831, and investigating whether such transactions constitute abusive transactions.

Artex Docket Report
Petition to enforce IRS summons filed by United States of America (Shoemaker, Martin) (Entered: 06/03/2014)

The “Captive Manager” Fallacy Continues
The captive insurance community is aware of a series of IRS audits over the last decade years directed at small captives operating under Section 501(c)(15) of the Internal Revenue Code (IRC). The IRS undertook a series of audits to test compliance with the 2004 legislative changes.

What is a Captive Insurance Company?
A captive is a small property and casualty insurance company usually formed by a business owner to provide property and casualty insurance for the related businesses. The policies may either supplement or replace existing conventional coverages. Often the captive is best used for unique, industry specific coverages not readily available in the conventional markets. Learn what captive insurance companies are and how they can help you manage business risks.

How a Captive Insurance Company Works
Smaller companies are increasingly copying a method to control insurance costs that used to be the domain mainly of large businesses: setting up insurance firms to provide coverage when they think outside insurers are charging too much. After a string of catastrophes in recent years -– the terror attacks in the U.S. in 2001 and London in 2005, as well as Hurricane Katrina in 2005 –- a number of small and midsize public companies are putting more thought into how to get the most insurance protection at the best costs.

Why Businesses Should Form Captive Insurance Companies
Owners of middle market businesses are attracted to the cost saving, risk management, and profit potential provided by owning their own insurance company. In a recent interview, Stewart A. Feldman, chief executive of Capstone Associated Services, a Houston-based firm specializing in alternative risk planning for closely held businesses, explained: “Many middle-market businesses needlessly ‘self-insure’ a wide range of risks. By self-insurance, I mean ‘pay directly out-of-pocket as losses are incurred’. This is an inefficient and dangerous approach to risk planning.”

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