Your World of Legal Intelligence
 United Kingdom | +44 (0) 20 7284 8080

Chapter GIM11040

Cited in Related
Vincent
Published date15 April 2016
Record NumberGIM11040
CourtHM Revenue & Customs

Establishing a captive is often not solely tax driven. There are commercial advantages to setting up a captive:

  • Insurance involves the transfer and sharing of risks. Some policyholders will receive back more than they pay in premiums whilst others will receive less. A group with a good claims record may find itself subsidising, via its level of premiums, the risks of others with a poor claims record - possibly even its competitors. A captive deals only with the risks and risk record of its own group. Good group risk management will enable the business either to reduce its premiums to reflect its own claims record, or to retain, through the subsidiary, the underwriting profits on its own insurance business. Additionally, the knowledge that the group is responsible for the risk tends to concentrate the minds of the local risk managers, making them more safety or liability conscious.
  • Some risks are very expensive or even impossible to insure on the open market. Professional indemnity, public liability and environmental damage fall into this category. A captive will insure what it is told to insure. Captive arrangements can also allow reserves to be built up against the risk of catastrophic events, at an economic price.
  • Some low layers of risk are not worth insuring. The group may feel that it is as well to retain the funds to pay these losses. An offshore location gives an additional tax advantage to the retention of such funds.
  • Some sectors of the insurance market experience substantial fluctuations in capacity. When capacity is limited perhaps due to heavy or persistent underwriting losses in the area concerned, premiums increase. Self-insuring through the use of a captive...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT