Micro Captive Insurance FAQs

WHAT IS A MICRO CAPTIVE INSURANCE COMPANY?
A Micro Captive insurance company is a legally licensed, limited-purpose property and casualty insurance company that is owned by its members under Internal Revenue Code (IRC) Section 831(b) operating with annual net written premium of up to $2.2 million.

HOW DO MICRO CAPTIVES WORK?
Micro Captives give small to mid-sized businesses the ability to self-insure against a variety of insurable risks, including those that might not be available through traditional insurance markets. Micro Captives are stand-alone insurance companies with their policies and premiums determined by independent actuaries. The Captive reports to the department of insurance of the domicile in which they are formed. A Micro Captive can write custom insurance policies that fit specific needs, self-insure against current risks and maintain control of the risk management process.

WHAT IS REQUIRED FOR A MICRO CAPTIVE INSURANCE COMPANY TO QUALIFY UNDER THE 831(B) ELECTION?

  • It must qualify as an insurance company for tax purposes and operate as an insurance company with adequate risk shifting and risk distribution.
  • To be taxed as a U.S. insurer, it must be a U.S. taxpayer domiciled in the United States or offshore but having elected and qualified under tax code section 953(d).
  • It must operate with an annual gross premium of no more than $2.2 million.

HOW ARE 831(b) MICRO CAPTIVES TAXED?
A captive insurance company qualified under IRC 831(b) will pay tax only on investment income. Premiums are tax deductible when paid under IRC Sections 162. Underwriting profits are not subject to immediate tax.

WHAT ARE THE ADVANTAGES OF BEING AN 831(b) MICRO CAPTIVE MEMBER?
831(b) Micro Captive members share in the underwriting profits and investment income. Captive members have greater control and management of claims. A Micro Captive offers flexibility in policy design, coverage and premium payment scheduling. It can be integrated with existing insurance policies and can supplement a Group Captive.

IS AN 831(b) MICRO CAPTIVE SUITABLE?
Chernoff Diamond will perform a review and actuarial analysis of your current program (including incurred and realized claims) to help determine if an 831(b) Micro Captive may be a suitable option. Our certified insurance counselors will deliver a feasibility study that forecasts risks and potential to capture savings through a Micro Captive Plan.

I HAVE ADDITIONAL QUESTIONS; WHERE CAN I GET MORE INFORMATION?
To learn more, visit our Micro Captive Insurance page or contact one of our Risk Advisors today at 411risk@chernoffdiamond.com.

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