Agriculture
What is Captive Insurance?
Captive insurance is a form of insurance whereby a company owns its own insurance company and pools the insurance risk with other businesses. Critically, the majority of the risk is spread across companies in industries outside of agriculture.
A captive insurance company provides several advantages and addresses several pain points for you and your business.
Insurance Benefits
Tailored Coverage
Captive insurance allows businesses to tailor their coverages to meet their unique needs. You can choose the type and level of coverage that best suits your business, rather than being limited to the options provided by traditional insurance providers
New Coverages
3F can work with you to create new coverages, for example, additional crop insurance above the government subsidized amounts in a cost effective manner.
Risk Management
By establishing your own insurance company, businesses have a greater incentive to identify and mitigate risks proactively. By being a responsible operator, you benefit even more because you retain your premiums net of losses (captive and pool).
ECONOMIC BENEFITS
Your Company
Captive Insurance
- Tax Rate Today (Federal and CA)
- Tax Rate on Investments
- PV Tax Rate (after 10 years)
- 50%
- 33 - 50%
- 50%
- 0%
- 21%
- 10%
Present Value (PV) tax rate assumes a 7% discount rate
- Premium Retention
You keep the premiums you pay into the captive net of claims and losses (captive and reinsurance pool). You also retain the underwriting gains on the premiums paid into your captive.
- Favorable Tax Treatment
Captives have favorable tax characteristics, especially when operating in states with high tax rates.
FINANCING BENEFITS
Your captive insurance company can make loans to your business up to 45% of the captive’s liquid assets.
The parent company can use these funds for various purposes, such as working capital, acquisitions, capital expenditures, or debt refinancing.
You Control the Financing
By lending from your captive insurance company, you take control over your financing options. You access funds on your terms, without dealing with external lenders.
Tax Benefits
The interest payments are income for your captive insurance while being a tax deduction for your operating business. Your captive will likely pay a lower tax rate, providing you with overall tax savings.
Risk Management and Financing Integration
Lending from your captive insurance company allows your parent company to integrate its risk management and financing strategies. You have control of both.
