From: Captive Insurance Times
Leading experts Diana Hardy, Adam Miholic, and Mike Meehan unravel the intricacies of hybrid insurance programmes
Diana Hardy, CPA, CFE
Audit partner
RH CPAs
From a regulatory perspective, what challenges or considerations arise when a captive insurance company and an admitted carrier co-exist within the same insurance programme?
A key area is assessing how the captive looks to the admitted carrier on its books, if the carrier is retaining some of the risk in a captive.
There are different rules for Statutory Accounting Principles (STAT) primarily SSAP 97 and Generally Accepted Accounting Principles (GAAP) which under Financial Accounting Standards Board Accounting Codification Topic 810 may require consolidation where STAT really never requires consolidation.
Another major concern is the collateral necessary. STAT accounting principles establish a Credit for Reinsurance, known as Schedule F penalties for property and casualty carriers, and Schedule S for life and health carriers.
Therefore, under STAT accounting principles do not allow for a credit for reinsurance unless the reinsurer is “authorised” or there is collateral sometimes in the form of a letter of credit, investments/cash posted, and sometimes a trust for the benefit of the admitted carrier.
How does the presence of a captive insurance company impact the financial reporting and taxation requirements for the overall insurance programme?
It depends. The taxation typically does not have much of an impact, there are certain elections to have consolidated tax filings or not and life carriers have much more complexity.