Rent-A-Captive

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Rent-A-Captive

Summary of Rent-A-Captive

The use of an offshore Captive Insurance company (read this and related legal terms for further details) owned or controlled by another firm to provide coverage not readily available commercially or to shelter income from taxation. The rent-a-captive approach may provide a firm with the benefits of owning a captive insurer without some of the difficulties. For example, the rented captive may be used in lieu of captive formation (1) to eliminate up-front capitalization of an owned captive; (2) where insurance expense is not sufficient to warrant such formation; (3) to overcome potential pitfalls associated with the Carnation Case And Revenue Ruling 77-316 (qq.V.), which regard payments by U.S. firms to offshore captives as “capital transfers,”and as such not deductible; and (4) to provide experience in captive operation and the accumulation of a surplus upon which the insured can establish his own captive.

(Main Author: William J. Miller)

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