Private Equity Firms Must Ensure That Captive Insurance Companies Meet Stringent Government Requirements

Abstract

Captive investment vehicles have become increasingly attractive in the private equity and hedge fund arena—and, with respect to reputation insurance, there are some very good reasons. But tread carefully, because the U.S. Internal Revenue Service and state regulators have now provided clear signals—evidenced by their investigations of Caterpillar and Moody’s—that they intend to bring closer scrutiny to anything they believe may have been constructed to be purely a tax shelter. Captives need to signal that they are legitimate insurance carriers, built around actuarily sound principles and clearly stated claim criteria for each of the risks they underwrite.

TOPICS: Private equity, legal/regulatory/public policy, in markets, portfolio construction