From: Captive Intelligence
The Captive Insurance Companies Association (CICA) has told the Internal Revenue Service (IRS) it believes that using a 65% loss ratio threshold as the measuring stick for whether a micro-captive transaction is abusive is the “wrong instrument”.
Captive Intelligence reported in April that the IRS had proposed new regulations for “micro captives”, which have divided opinion across America’s captive landscape and prompted a flurry of responses to the Service.
“The underlying premise appears to be that a small captive insurance company that writes property and casualty insurance must look something like an “average” non-captive insurance company,” Dan Towle, preside of CICA said in a letter to the IRS.
“The reality is that every commercial insurance company has its own risk profile, loss ratios, expenses, and profit and contingencies levels; and none of them are “average.’”
The Association said that the inherent problem is that losses are evidence of risk, “but lack of losses is not evidence of lack of risk.”
“If my house burns down, but my neighbour’s house does not, I have substantial losses, but my risk was no different than my neighbour’s.”
CICA said that it is imperative the IRS does not label transactions as “listed transactions” that are properly characterised as “transactions of interest”, and that the IRS does not label transactions as “transactions of interest” when they do not have the potential for tax avoidance.