News for the Hospitality Executive |
Hotel
Lawyer: Are you thinking about setting up a captive
insurance company? Maybe
you should be. . .
By
Jim
Butler
and the Global Hospitality Group®,
Author of www.HotelLawBlog.com June 21, 2011 For the most recent update on this topic, click here Setting
up your own captive insurance company can protect your business and
save you
money! Captive insurance companies can provide substantial economic
savings and
tax flexibility for hotel owners. My
partner, Gordon Schaller, is one of the top experts in the country
advising
clients on when it makes sense to set up a captive insurance company
and how to
do it. To find out how this can work for you, read today's post on the
Hotel
Law Blog. Captive
Insurance for
Hotel Owners by Gordon Schaller |
Hotel Lawyer, JMBM Global Hospitality
Group®
A captive
insurance company is a subsidiary or affiliate of a closely-held
business
entity formed to insure or reinsure certain risks of those entities.
The
captive is formed either in a U.S. or foreign jurisdiction for the
purpose of
writing property and casualty insurance. It goes through a regulatory
licensing
process that has become simpler as more states have created modern
captive
statutes. Once licensed, the captive is capitalized (amount varies by
jurisdiction), and then issues insurance policies to the insured
affiliates and
collects premiums. Premiums are determined by independent actuaries
based on
existing market comparables. Policies contain all of the normal terms
of
commercial insurance contracts. What
kind of insurance does a captive insurance company provide? The
focus of a single-parent or affiliated captive is to economically
assume risk
that is already self-insured, including deductibles and exclusions on
existing
commercial policies. Risks inherent in a business that are currently
not
insured are effectively self-insured. Certain types of coverage are
unavailable
or difficult to obtain, often due to historic loss experience or
conditions
such as environmental, earthquake, wind, and weather. Cyber theft is a
risk
that has a greater impact on hotels than many other businesses since
the hotel
has substantial confidential information about its guests, including
addresses,
credit card numbers, and email addresses. Food-borne illnesses could
also be a
major problem if the hotel has a restaurant. The same is true of sexual
harassment and age discrimination claims. Just the costs of litigation
of many
of these claims could be enormous, apart from the liability itself.
Finally,
remember the catastrophic impact of a "black swan" event such as 9/11
or Legionnaire's Disease on the hotel industry. These are only a few
examples
of the risks that could be insured through a hotel-based captive
insurance
company. Risk
and control of asset investment. A
captive can also provide incentives to improve risk management
throughout an
organization, since surplus not used to pay claims can be distributed
to
shareholders as dividends. Control of the captive also means that the
client
has investment control of the captive's assets, subject to certain
restrictions
and regulations depending on the jurisdiction in which the captive is
formed. Special
tax treatment for captive insurance companies. Captive
insurance companies have been recognized by and received special tax
treatment
under the Internal Revenue Code, similar to that afforded major
property and
casualty carriers such as Marsh, Aon, and Willis, for over 50 years.
Another
special provision available to "small" property and casualty
companies ($1.2 million or less of annual premium) allows all premiums
to be
fully non-taxable to the captive, even though they are deductible by
the
insured company. Reserves are invested by the captive and retained in
anticipation of future losses and/or a growing net equity. Captive
insurance company benefits enjoyed by thousands of companies. Today,
the owners of thousands of businesses have accumulated substantial
pre-tax
wealth through their captive insurance companies. In order to receive
these
special benefits, the captive and the policies written must have the
attributes
of insurance: (1) risk shifting; and (2) risk distribution. Risk
shifting is
easily accomplished by a valid insurance contract shifting the risk to
a
validly formed and licensed insurance company. Risk distribution
involves the
"law of large numbers" and has been an area closely scrutinized by
the IRS. Fortunately, the IRS has published several rulings that
provide
guidance on the risk distribution requirement. Therefore, formation,
qualification and operation of a closely-held captive insurance company
requires advice from professionals with significant experience in this
area. Gordon Schaller
is a
partner in JMBM's Taxation, Trusts & Estates Department, and a
senior
member of JMBM's Global Hospitality Group®. Gordon helps businesses
set up
captive insurance companies and advises them in a full range of
strategies to
achieve tax efficiencies. For more information, please contact Gordon
Schaller
at 949.623.7222 or [email protected]. ________________________ This is Jim Butler,
author of www.HotelLawBlog.com
and hotel lawyer,
signing off. We've done more than $60 billion of hotel transactions and
have
developed innovative solutions to help investors be successful in
bidding for
hotel acquisitions, and helping investors and lenders to unlock value
from
troubled hotel transactions. Who's your hotel lawyer? ________________________ Our
Perspective. We
represent hotel lenders,
owners and investors. We have helped our clients find business and
legal
solutions for more than $60 billion of hotel transactions, involving
more than
1,250 properties all over the world. For more information, please
contact Jim
Butler at [email protected]
or 310.201.3526. Jim
Butler is a founding partner of JMBM and Chairman of its Global
Hospitality
Group®. Jim is one of the top hospitality attorneys in the world.
GOOGLE
"hotel lawyer" and you will see why. JMBM's
troubled asset team has handled more than 1,000 receiverships and many
complex
insolvency issues. But Jim and his team are more than "just" great
hotel lawyers. They are also hospitality consultants and business
advisors. For
example, they have developed some unique proprietary approaches to
unlock value
in underwater hotels that can benefit lenders, borrowers and investors.
(GOOGLE
"JMBM SAVE program".) Whether
it is a troubled investment or new transaction, JMBM's Global
Hospitality
Group® creates legal and business solutions for hotel owners and
lenders. They
are deal makers. They can help find the right operator or capital
provider.
They know who to call and how to reach them. JMBM’s Global Hospitality Group® The hotel lawyers in the Global Hospitality Group® of Jeffer Mangels Butler & Mitchell (JMBM) comprise the premier hospitality practice in a full-service law firm and are the authors of the Hotel Law Blog. We represent hotel owners, developers, investors and lenders and have helped our clients find business and legal solutions for more than $60 billion of hotel transactions, involving more than 1,000 properties worldwide. For more information about the Global Hospitality Group®, go to www.HotelLawBlog.com. For more information about full range of legal services provided by JMBM, go to www.JMBM.com. |
Contact:
Jim Butler
|