Onshore captives - Western Region Captive Insurance Conference

Report
Offshore vs.
Onshore
#[WRCIC]
Offshore vs. Onshore
Anne Marie Towle, CPA
Vice President, Senior Captive Consultant
Willis Global Captive Practice – Chicago, IL
[email protected]
Nicola Neilon, CPA
Partner , Casey, Neilon & Associates,
Strategic Wealthcare Advisors, Carson City, NV
[email protected]
Robert Vogel, CPA
Vice President , Pro Group Captive
Management Services - Carson City, NV
[email protected]
Offshore vs. Onshore
The selection of a captive’s domicile is one of the
most important decisions involved in a captive
feasibility study. And the first critical question that
needs to be resolved is “onshore or offshore?” This is
such an important issue that it needs to be resolved
before any of the other issues are addressed since all
financial and operational assumptions are dependent
on the domicile chosen.
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Offshore vs. Onshore
Domicile Selection
Domicile decision metrics:
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Capitalization and surplus requirements
Regulatory environment
Availability of local infrastructure expertise
Political considerations
Cost of operations
Tax Considerations
Offshore vs. Onshore
Capitalization and Surplus Requirements
• Capital Requirements are generally
lower off shore than onshore
– Example
• Utah Pure Captive
$250,000
• Bermuda Class 1 Pure
$120,000
However, less capital is not always better
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Offshore vs. Onshore
Regulatory Environment
• US regulatory governance has State and National
accreditation standards that focus on solvency,
stability and protection of insured's
• Offshore domiciles governance is individual per
country, can change easily and the focus generally on
financial dollars flowing into that country
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Offshore vs. Onshore
Availability of Local Infrastructure
And Expertise
• Onshore domiciles have been conducting the “business of
captives” since 1970’s and still developing in terms of service
providers, regulatory experience and choices
• Some Offshore domiciles have been conducting the “business
of captives” since the 1800’s, yet others are much newer
however tend to be rich with service providers but not
necessarily with the same transparency as onshore
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Offshore vs. Onshore
Political and Perception Considerations
• Offshore
– The American consumer has become acutely opinionated on U.S.
corporations conducting their affairs offshore and could harm
companies reputation.
– Patriot Act
– 911
– Money laundering
– Reputation
• Onshore
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Offshore vs. Onshore
Cost of Operations
Cost of Service providers
tend to be 20% more offshore
Cost of Travel and services
Ease of geographic location
Conducting business between different time zones
Natural disasters and the interruption of business activities
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Offshore vs. Onshore
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U.S. Taxpayer?
Why Insurance Matters?
Why Offshore?
Why Onshore?
What does this mean to you?
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Offshore vs. Onshore
U.S. Taxpayer ?
The process of selection a domicile begins with a
determination of the financially optimal tax
treatment of the captive facility:
• Do we want the captive to be a U.S. taxpayer?
– if no, then the captive will need to be offshore;
– if yes, then the captive may be either offshore or
onshore.
• If the captive is not going to be a U.S. taxpayer, then
which offshore domicile is optimal?
• If the captive is going to be a U.S. taxpayer, then
which domicile (offshore/onshore) is optimal?
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Offshore vs. Onshore
Why Insurance Matters
Tax deduction for premiums paid to captive by policyholder
Favorable insurance tax treatment of captive (deduction for discounted
insurance reserves, unearned premiums)
– Offshore CFC captives - Subpart F income
– Domestic captives - direct federal income tax
Onshore captives
– Possible IRC § 831(b) investment income only taxation
Offshore captives
– Possible IRC § 953(d) onshore tax election
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Offshore vs. Onshore
Why Offshore
Traditionally, off-shore domiciles have been chosen by
large global organizations because of
– Tax benefits
– Lower minimum capitalization requirements
– Less conservative premium-to-surplus ratio
requirements
– A depth of experience working with global
organizations
– Easy access to offshore risk transfer markets
– Flexibility of regulation
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Offshore vs. Onshore
Why Onshore?
• Currently over 30 domiciles have enabling captive
insurance legislation
– Tax benefits
– Ability to write employee benefits in U.S. captive
– A depth of experience working with small, medium and large
organizations
– Flexibility of regulation
– Desire to be a U.S. Taxpayer
– Lower operating expenses
– Ease of accessibility
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Offshore vs. Onshore
What does this mean to you?
Recommendations:
1. Work closely with captive consultant, tax
and legal advisors to determine best option
for your company
2. The initial option may change to a different
domicile in the future due to economic,
regulatory or company goals
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Offshore vs. Onshore
Thank you for your participation today
Questions?
Anne Marie Towle, CPA
Vice President, Senior Captive Consultant
Willis Global Captive Practice – Chicago, IL
[email protected]
Nicola Neilon, CPA
Partner , Casey, Neilon & Associates,
Strategic Wealthcare Advisors, Carson City, NV
[email protected]
Robert Vogel, CPA
Vice President , Pro Group Captive
Management Services - Carson City, NV
[email protected]
#[WRCIC]

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