CAPTIVE INSURANCE COMPANY FORMATION DOCUMENT KIT

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DOCUMENT INFORMATION

Field	Details
Document Title	Captive Insurance Company Formation Document Kit
Prepared By	[________________________________]
Prepared For	[________________________________]
Date Prepared	[__/__/____]
Proposed Captive Name	[________________________________]
Parent Entity / Sponsor	[________________________________]
Proposed Domicile State	[________________________________]
Captive Type	[________________________________]
Target Formation Date	[__/__/____]
Captive Manager	[________________________________]
Insurance Counsel	[________________________________]
Actuary	[________________________________]
Tax Advisor	[________________________________]

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TABLE OF CONTENTS

1. Overview of Captive Insurance
2. Types of Captive Insurance Companies
3. Articles of Incorporation
4. Corporate Bylaws
5. Business Plan Outline
6. Investment Policy Statement
7. Risk Management Policy
8. Capitalization Worksheet
9. Domicile Comparison Table (VT, DE, HI, SC, TN, UT, NV)
10. Regulatory Application Checklist
11. Annual Compliance Calendar
12. Tax Election Considerations (IRC § 831(b) Analysis)
13. Board Resolution Templates
14. Sources and References

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PART 1: OVERVIEW OF CAPTIVE INSURANCE

1.1 What Is Captive Insurance?

A captive insurance company is a wholly owned subsidiary or controlled entity created to insure or reinsure the risks of its parent organization, affiliated entities, or a defined group of insureds. Unlike commercial insurance purchased from third-party carriers, a captive allows the insured to retain underwriting profit, earn investment income on reserves, access reinsurance markets directly, and exercise greater control over claims management and risk financing.

Captive insurance represents a formalized method of self-insurance that carries the regulatory imprimatur of a licensed insurance company, enabling the insured to deduct premium payments as ordinary business expenses under applicable provisions of the Internal Revenue Code.

1.2 Strategic Rationale for Captive Formation

Organizations typically form captive insurance companies for one or more of the following reasons:

• Cost Reduction: Elimination of commercial carrier profit margins and overhead
• Coverage Availability: Access to coverage for risks the commercial market declines to underwrite or prices prohibitively
• Risk Management Control: Direct control over claims handling, loss prevention, and policy terms
• Investment Income: Retention of investment income earned on loss reserves and unearned premiums
• Underwriting Profit Retention: Capture of underwriting gains that would otherwise accrue to commercial carriers
• Reinsurance Market Access: Direct access to global reinsurance markets at wholesale pricing
• Tax Efficiency: Deductibility of premiums paid to the captive and potential favorable tax elections
• Cash Flow Management: Improved timing of insurance cost recognition and loss payments
• Formalization of Self-Insurance: Regulatory structure that supports premium deductibility and policyholder protections

1.3 Feasibility Considerations

Before proceeding with formation, the following threshold questions must be addressed:

☐ Does the organization have sufficient insurable risks to justify captive formation?
☐ Are annual premiums projected to exceed minimum economic thresholds (typically $250,000+)?
☐ Is there organizational commitment to risk management discipline and regulatory compliance?
☐ Has a preliminary feasibility study been conducted by a qualified captive consultant?
☐ Have the tax implications been analyzed by qualified tax counsel?
☐ Is there adequate loss history (minimum 3-5 years) to support actuarial projections?
☐ Has the commercial insurance market been evaluated for comparison pricing?
☐ Are the contemplated risks insurable under the laws of the proposed domicile?

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PART 2: TYPES OF CAPTIVE INSURANCE COMPANIES

2.1 Single-Parent (Pure) Captive

A single-parent captive is owned by one parent organization and insures only the risks of its parent and affiliated entities. This is the most common captive structure.

Characteristics:
- Simplest organizational structure
- Complete control by the parent entity
- Insures only parent and affiliated risks
- Lowest minimum capitalization in most domiciles ($250,000 typical)
- Most straightforward regulatory approval

2.2 Group Captive

A group captive is owned by multiple unrelated organizations that share similar risk profiles. Members pool risks and share in the captive's financial results.

Characteristics:
- Shared ownership among multiple unrelated entities
- Risk pooling reduces individual exposure volatility
- Members typically share industry or risk characteristics
- Requires governance agreements among members
- Higher capitalization requirements than pure captives

2.3 Association Captive

An association captive is sponsored by a trade association, industry group, or professional organization to provide coverage for its members.

Characteristics:
- Sponsored by existing trade or professional association
- Members access coverage through association membership
- Association maintains governance oversight
- Higher minimum capitalization ($500,000-$750,000 typical)
- Suitable for homogeneous risk groups

2.4 Cell Captive (Protected Cell / Segregated Cell)

A cell captive maintains legally segregated cells within a single corporate entity. Each cell's assets and liabilities are ring-fenced from other cells and the core entity.

Characteristics:
- Single legal entity with multiple segregated cells
- Each cell's assets protected from other cells' liabilities
- Participants access captive benefits without forming separate entities
- Lower entry costs for individual participants
- Core entity (sponsor) maintains overall governance
- Available in select domiciles (Vermont, Delaware, South Carolina, Hawaii, others)

2.5 Rent-a-Captive / Sponsored Captive

A sponsored captive is owned and operated by a captive manager or sponsor that rents capacity to participants who do not wish to form their own captive.

Characteristics:
- Sponsor owns and manages the captive entity
- Participants "rent" capacity through segregated accounts
- Lower startup costs than forming a standalone captive
- Suitable for organizations testing the captive concept
- Sponsor handles regulatory compliance and administration

2.6 Agency Captive

An agency captive is owned by an insurance agency or brokerage to reinsure a portion of the risks written through the agency.

Characteristics:
- Owned by licensed insurance agency or brokerage
- Reinsures portion of commercially placed business
- Aligns agency incentives with underwriting performance
- Minimum capitalization typically $250,000

2.7 Industrial Insured Captive

An industrial insured captive provides coverage to industrial insureds that meet specified premium and risk management criteria.

Characteristics:
- Insures risks of qualifying industrial organizations
- Insureds typically meet minimum premium thresholds
- Higher capitalization requirements ($500,000 typical)
- May provide coverage to multiple unrelated industrial insureds

2.8 Risk Retention Group (RRG)

While technically a separate regulatory category under the federal Liability Risk Retention Act of 1986, risk retention groups share characteristics with captives and are licensed in captive-friendly domiciles.

Characteristics:
- Formed under federal Liability Risk Retention Act (15 U.S.C. § 3901 et seq.)
- Limited to liability coverage only
- Members must share common risk characteristics
- May operate in all states once licensed in one domicile
- Highest minimum capitalization ($1,000,000 typical)

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PART 3: ARTICLES OF INCORPORATION

ARTICLES OF INCORPORATION OF [________________________________]

A Captive Insurance Company Organized Under the Laws of the State of [________________________________]

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ARTICLE I — NAME

The name of the corporation shall be [________________________________] (hereinafter referred to as the "Company").

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ARTICLE II — REGISTERED OFFICE AND AGENT

The address of the registered office of the Company in the State of [________________] is:

[________________________________]
[________________________________]
[________________________________]

The name of the registered agent at such address is:

[________________________________]

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ARTICLE III — PURPOSE

The Company is organized exclusively for the purpose of operating as a captive insurance company under the captive insurance laws of the State of [________________], specifically [____________________________________] (insert applicable statutory citation), and to engage in any and all activities incidental or related thereto as permitted by law, including but not limited to:

(a) Issuing policies of insurance and reinsurance covering risks of the Company's [parent organization / members / sponsors / participants] (select applicable) and their respective affiliates, subsidiaries, and related entities;

(b) Establishing and maintaining reserves for the payment of losses and loss adjustment expenses;

(c) Investing and reinvesting the Company's assets in accordance with applicable law and the Company's investment policy;

(d) Entering into reinsurance agreements as both a ceding company and an assuming reinsurer;

(e) Engaging in risk management, loss control, and claims administration activities; and

(f) Performing all acts and conducting all business necessary, incidental, or related to the foregoing purposes.

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ARTICLE IV — AUTHORIZED CAPITAL

Section 4.1 — Authorized Shares. The total number of shares of capital stock that the Company is authorized to issue is [________] shares of common stock, par value $[________] per share.

Section 4.2 — Initial Capitalization. The Company shall be capitalized with not less than $[________________________________] in paid-in capital and surplus, consisting of:

(a) Cash: $[________________________________]
(b) Irrevocable Letter of Credit: $[________________________________]
(c) Marketable Securities: $[________________________________]
(d) Other Commissioner-Approved Assets: $[________________________________]

Section 4.3 — Additional Capital. The Board of Directors may, from time to time, authorize the issuance of additional shares and the acceptance of additional capital contributions as necessary to maintain the financial soundness of the Company and to comply with applicable regulatory requirements.

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ARTICLE V — DURATION

The Company shall have perpetual existence, unless sooner dissolved in accordance with law and these Articles.

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ARTICLE VI — BOARD OF DIRECTORS

Section 6.1 — Number. The business and affairs of the Company shall be managed by a Board of Directors consisting of not fewer than [____] nor more than [____] directors. The initial Board of Directors shall consist of [____] directors.

Section 6.2 — Initial Directors.

Name	Address
[________________________________]	[________________________________]
[________________________________]	[________________________________]
[________________________________]	[________________________________]

Section 6.3 — Resident Director. At least one director shall be a resident of, or maintain a principal place of business in, the State of [________________], as required by applicable domicile law.

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ARTICLE VII — INCORPORATOR

The name and address of the incorporator is:

Name: [________________________________]
Address: [________________________________]

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ARTICLE VIII — INDEMNIFICATION

The Company shall indemnify its directors, officers, employees, and agents to the fullest extent permitted by the laws of the State of [________________] and the Company's Bylaws.

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ARTICLE IX — LIMITATION OF LIABILITY

To the fullest extent permitted by law, no director of the Company shall be personally liable to the Company or its shareholders for monetary damages for breach of fiduciary duty as a director, except for liability:

(a) For any breach of the director's duty of loyalty to the Company or its shareholders;
(b) For acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;
(c) For unlawful distributions; or
(d) For any transaction from which the director derived an improper personal benefit.

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ARTICLE X — AMENDMENT

These Articles of Incorporation may be amended in the manner prescribed by the laws of the State of [________________] and with the prior approval of the Commissioner of Insurance (or equivalent regulatory authority), where such approval is required by applicable captive insurance law.

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IN WITNESS WHEREOF, the undersigned incorporator has executed these Articles of Incorporation this [____] day of [________________], 20[____].

________________________________________
Incorporator: [________________________________]
STATE OF [________________]
COUNTY OF [________________]

Before me, the undersigned notary public, on this [____] day of [________________], 20[____], personally appeared [________________________________], known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity and that by his/her/their signature on the instrument, the person, or the entity upon behalf of which the person acted, executed the instrument.

________________________________________
Notary Public
My Commission Expires: [__/__/____]

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PART 4: CORPORATE BYLAWS

BYLAWS OF [________________________________]

A Captive Insurance Company

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ARTICLE I — OFFICES

Section 1.1 — Principal Office. The principal office of the Company shall be located at [________________________________], in the State of [________________].

Section 1.2 — Other Offices. The Company may maintain such other offices, within or without the State of [________________], as the Board of Directors may from time to time determine.

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ARTICLE II — SHAREHOLDERS

Section 2.1 — Annual Meeting. The annual meeting of shareholders shall be held on [________________________________] of each year, or on such other date as may be designated by the Board of Directors, for the purpose of electing directors and transacting such other business as may properly come before the meeting.

Section 2.2 — Special Meetings. Special meetings of shareholders may be called by the Board of Directors, the President, or by shareholders holding not less than [____]% of the outstanding shares entitled to vote.

Section 2.3 — Notice of Meetings. Written notice of each meeting of shareholders shall be given not less than [____] nor more than [____] days before the date of the meeting to each shareholder entitled to vote, stating the place, date, and hour of the meeting, and the purpose or purposes for which the meeting is called.

Section 2.4 — Quorum. The presence, in person or by proxy, of shareholders holding a majority of the outstanding shares entitled to vote shall constitute a quorum for the transaction of business.

Section 2.5 — Voting. Each shareholder shall be entitled to one vote for each share of common stock held. All matters submitted to a vote of shareholders shall be decided by the affirmative vote of a majority of the shares present and entitled to vote, unless a greater vote is required by law or these Bylaws.

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ARTICLE III — BOARD OF DIRECTORS

Section 3.1 — General Powers. The business and affairs of the Company shall be managed by the Board of Directors. The Board shall have all powers necessary and appropriate to carry out the purposes of the Company, including the power to:

(a) Establish insurance and reinsurance programs;
(b) Approve premium rates and policy forms;
(c) Adopt investment policies;
(d) Appoint officers and captive management personnel;
(e) Authorize distributions to shareholders;
(f) Approve actuarial studies and loss reserve analyses; and
(g) Ensure regulatory compliance.

Section 3.2 — Number, Tenure, and Qualifications. The number of directors shall be not fewer than [____] nor more than [____]. Each director shall hold office until the next annual meeting of shareholders and until a successor is elected and qualified. At least one director shall be a resident of, or have a principal place of business in, the domicile state.

Section 3.3 — Regular Meetings. A regular meeting of the Board of Directors shall be held without notice immediately after the annual meeting of shareholders. The Board shall hold not fewer than [____] regular meetings per year.

Section 3.4 — Special Meetings. Special meetings of the Board of Directors may be called by the President or by any [____] directors.

Section 3.5 — Notice. Notice of any special meeting shall be given at least [____] days prior thereto by written notice delivered personally, by mail, or by electronic communication to each director at the director's address as shown on the records of the Company.

Section 3.6 — Quorum. A majority of the number of directors fixed by these Bylaws shall constitute a quorum for the transaction of business at any meeting of the Board of Directors.

Section 3.7 — Annual In-State Meeting Requirement. The Board of Directors shall hold at least one meeting per year at the principal office or within the domicile state, with a minimum of [____] directors physically present. [Note: Required in certain domiciles including South Carolina per S.C. Code Ann. § 38-90-60.]

Section 3.8 — Action by Written Consent. Any action required or permitted to be taken at a meeting of the Board of Directors may be taken without a meeting if all directors consent thereto in writing, subject to any domicile-specific restrictions on consent actions.

Section 3.9 — Participation by Electronic Means. Directors may participate in any meeting by means of conference telephone or similar communications equipment through which all persons participating can hear one another, and such participation shall constitute presence in person at such meeting, subject to any domicile-specific requirements for physical presence.

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ARTICLE IV — OFFICERS

Section 4.1 — Officers. The officers of the Company shall consist of a President, a Secretary, a Treasurer, and such other officers as the Board of Directors may from time to time appoint.

Section 4.2 — President. The President shall be the chief executive officer of the Company and shall preside at all meetings of shareholders and the Board of Directors. The President shall have general supervisory authority over the business and affairs of the Company.

Section 4.3 — Secretary. The Secretary shall keep the minutes of all meetings of shareholders and the Board of Directors, maintain the corporate records, and perform all duties incident to the office.

Section 4.4 — Treasurer. The Treasurer shall have custody of the Company's funds and securities, maintain full and accurate accounts of receipts and disbursements, and render financial reports to the Board as required.

Section 4.5 — Removal and Vacancies. Any officer may be removed by the Board of Directors with or without cause. A vacancy in any office shall be filled by the Board of Directors.

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ARTICLE V — CAPTIVE MANAGEMENT

Section 5.1 — Captive Manager Appointment. The Board of Directors shall appoint a qualified captive insurance manager (the "Captive Manager") to manage the day-to-day operations of the Company, including but not limited to:

(a) Policy issuance and administration;
(b) Premium billing and collection;
(c) Claims processing and management;
(d) Financial reporting and accounting;
(e) Regulatory filings and compliance;
(f) Coordination with actuaries, auditors, and service providers; and
(g) Investment management oversight.

Section 5.2 — Captive Manager Qualifications. The Captive Manager shall be licensed or registered in the domicile state, where required, and shall possess demonstrated experience and competence in captive insurance management.

Section 5.3 — Captive Management Agreement. The terms and conditions of the Captive Manager's engagement shall be set forth in a written Captive Management Agreement approved by the Board of Directors, which shall include provisions regarding:

(a) Scope of services;
(b) Compensation and fee structure;
(c) Performance standards;
(d) Reporting obligations;
(e) Term and termination;
(f) Confidentiality and data security; and
(g) Errors and omissions insurance requirements.

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ARTICLE VI — INSURANCE OPERATIONS

Section 6.1 — Actuarial Review. The Company shall engage a qualified actuary to perform an annual actuarial analysis of the Company's loss reserves, premium adequacy, and financial condition. The actuary shall be a Fellow of the Casualty Actuarial Society (FCAS) or hold equivalent qualifications.

Section 6.2 — Premium Determination. All premiums charged by the Company shall be established on a sound actuarial basis and shall be adequate to cover expected losses, loss adjustment expenses, operating expenses, and a reasonable margin for adverse deviation.

Section 6.3 — Reserve Establishment. The Company shall establish and maintain reserves for unpaid losses, loss adjustment expenses, unearned premiums, and such other reserves as may be required by applicable law or determined by the Board of Directors in consultation with the Company's actuary.

Section 6.4 — Reinsurance. The Board of Directors may authorize the Company to enter into reinsurance agreements, both as a ceding company and as an assuming reinsurer, subject to applicable regulatory requirements and prudent risk management principles.

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ARTICLE VII — FISCAL MATTERS

Section 7.1 — Fiscal Year. The fiscal year of the Company shall end on December 31 of each year, unless otherwise determined by the Board of Directors.

Section 7.2 — Annual Audit. The financial statements of the Company shall be audited annually by an independent certified public accountant in accordance with applicable statutory accounting principles (SAP) and domicile requirements.

Section 7.3 — Dividends and Distributions. The Board of Directors may authorize distributions to shareholders from the surplus of the Company, provided that:

(a) The Company maintains the minimum capital and surplus required by applicable law;
(b) The distribution does not impair the Company's ability to pay its obligations as they become due;
(c) Prior regulatory approval has been obtained, if required by domicile law; and
(d) The distribution is consistent with the Company's approved business plan.

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ARTICLE VIII — AMENDMENTS

These Bylaws may be amended or repealed by the affirmative vote of a majority of the Board of Directors at any regular or special meeting, subject to any required regulatory approvals.

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ADOPTED by the Board of Directors on [__/__/____].

________________________________________
Secretary: [________________________________]

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PART 5: BUSINESS PLAN OUTLINE

CAPTIVE INSURANCE COMPANY BUSINESS PLAN

Prepared for: [________________________________]
Date: [__/__/____]
Prepared by: [________________________________]

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5.1 Executive Summary

Company Name: [________________________________]
Captive Type: ☐ Pure / Single-Parent ☐ Group ☐ Association ☐ Cell ☐ Sponsored ☐ Agency ☐ Industrial Insured ☐ Risk Retention Group

Proposed Domicile: [________________________________]
Parent / Sponsor: [________________________________]
Initial Capitalization: $[________________________________]
Projected Annual Premium: $[________________________________]
Lines of Coverage: [________________________________]
Targeted Effective Date: [__/__/____]

Business Purpose Statement:
[________________________________]
[________________________________]
[________________________________]

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5.2 Organizational Structure

5.2.1 Parent / Sponsor Information

Field	Details
Legal Name	[________________________________]
State of Incorporation	[________________________________]
Principal Business	[________________________________]
Annual Revenue	$[________________________________]
Number of Employees	[________________________________]
Years in Business	[________________________________]
Current Insurance Spend	$[________________________________]

5.2.2 Ownership Structure

Shareholder	Ownership %	Capital Contribution
[________________________________]	[____]%	$[________________________________]
[________________________________]	[____]%	$[________________________________]
[________________________________]	[____]%	$[________________________________]

5.2.3 Management Team

Role	Name / Entity	Qualifications
Captive Manager	[________________________________]	[________________________________]
Actuary	[________________________________]	[________________________________]
Auditor	[________________________________]	[________________________________]
Legal Counsel	[________________________________]	[________________________________]
Investment Advisor	[________________________________]	[________________________________]
Claims Administrator	[________________________________]	[________________________________]

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5.3 Insurance Program

5.3.1 Lines of Coverage

Line of Coverage	Policy Limits	Retention/Deductible	Estimated Annual Premium
[________________________________]	$[________]	$[________]	$[________]
[________________________________]	$[________]	$[________]	$[________]
[________________________________]	$[________]	$[________]	$[________]
[________________________________]	$[________]	$[________]	$[________]
[________________________________]	$[________]	$[________]	$[________]
Total			$[________]

5.3.2 Coverage Rationale

For each line of coverage, explain the business rationale for inclusion in the captive program:

Line 1: [________________________________]
Rationale: [________________________________]
[________________________________]

Line 2: [________________________________]
Rationale: [________________________________]
[________________________________]

Line 3: [________________________________]
Rationale: [________________________________]
[________________________________]

5.3.3 Reinsurance Program

Type	Reinsurer	Attachment Point	Limit	Estimated Cost
☐ Quota Share	[________________]	[________]	$[________]	$[________]
☐ Excess of Loss	[________________]	$[________]	$[________]	$[________]
☐ Aggregate Stop-Loss	[________________]	$[________]	$[________]	$[________]
☐ Other: [________]	[________________]	$[________]	$[________]	$[________]

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5.4 Loss History and Projections

5.4.1 Historical Loss Experience (5-Year Summary)

Year	Premiums Paid	Incurred Losses	Loss Ratio	Number of Claims
20[____]	$[________]	$[________]	[____]%	[____]
20[____]	$[________]	$[________]	[____]%	[____]
20[____]	$[________]	$[________]	[____]%	[____]
20[____]	$[________]	$[________]	[____]%	[____]
20[____]	$[________]	$[________]	[____]%	[____]

5.4.2 Actuarial Projections (5-Year Pro Forma)

Year	Projected Premium	Expected Losses	LAE	Operating Expenses	Net Income	Surplus
Year 1	$[________]	$[________]	$[________]	$[________]	$[________]	$[________]
Year 2	$[________]	$[________]	$[________]	$[________]	$[________]	$[________]
Year 3	$[________]	$[________]	$[________]	$[________]	$[________]	$[________]
Year 4	$[________]	$[________]	$[________]	$[________]	$[________]	$[________]
Year 5	$[________]	$[________]	$[________]	$[________]	$[________]	$[________]

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5.5 Financial Projections

5.5.1 Pro Forma Balance Sheet (Year 1)

Assets	Amount	Liabilities & Surplus	Amount
Cash & Equivalents	$[________]	Loss Reserves	$[________]
Marketable Securities	$[________]	LAE Reserves	$[________]
Premiums Receivable	$[________]	Unearned Premium	$[________]
Reinsurance Recoverables	$[________]	Reinsurance Payable	$[________]
Accrued Investment Income	$[________]	Accounts Payable	$[________]
Other Assets	$[________]	Other Liabilities	$[________]
		Paid-in Capital	$[________]
		Contributed Surplus	$[________]
		Retained Earnings	$[________]
Total Assets	$[________]	Total Liab. & Surplus	$[________]

5.5.2 Operating Budget

Expense Category	Year 1	Year 2	Year 3
Captive Management Fees	$[________]	$[________]	$[________]
Actuarial Fees	$[________]	$[________]	$[________]
Audit Fees	$[________]	$[________]	$[________]
Legal Fees	$[________]	$[________]	$[________]
Regulatory Fees & Taxes	$[________]	$[________]	$[________]
Directors' Fees	$[________]	$[________]	$[________]
Claims Administration	$[________]	$[________]	$[________]
Investment Advisory	$[________]	$[________]	$[________]
Miscellaneous	$[________]	$[________]	$[________]
Total Operating Expenses	$[________]	$[________]	$[________]

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5.6 Risk Management Program

Describe the parent organization's existing risk management program and how the captive will enhance it:

[________________________________]
[________________________________]
[________________________________]

Loss Control Initiatives:
☐ Written safety policies and procedures
☐ Employee training programs
☐ Regular facility inspections
☐ Incident reporting and investigation protocols
☐ Return-to-work programs
☐ Fleet safety programs
☐ Contractual risk transfer (hold harmless / indemnification)
☐ Third-party loss control consulting
☐ Other: [________________________________]

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PART 6: INVESTMENT POLICY STATEMENT

INVESTMENT POLICY STATEMENT OF [________________________________]

Adopted: [__/__/____]
Last Reviewed: [__/__/____]

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6.1 Purpose

This Investment Policy Statement ("IPS") establishes the investment objectives, guidelines, and constraints for the management of the assets of [________________________________] (the "Company"). This IPS shall govern the investment of all Company funds, including paid-in capital, surplus, loss reserves, unearned premium reserves, and other assets.

6.2 Investment Objectives

The primary investment objectives, in order of priority, are:

1. Preservation of Capital: Maintain the safety and integrity of invested assets;
2. Liquidity: Ensure sufficient liquidity to meet all policyholder obligations and operating expenses as they become due;
3. Regulatory Compliance: Comply with all investment restrictions imposed by the domicile state;
4. Income Generation: Generate a reasonable rate of investment return consistent with the foregoing objectives; and
5. Asset-Liability Matching: Match the duration and character of invested assets to the expected timing of policyholder obligations.

6.3 Permissible Investments

Asset Class	Maximum Allocation	Quality Requirement
U.S. Treasury Securities	[____]%	Full faith & credit of U.S.
U.S. Government Agency Securities	[____]%	Agency-backed
Investment-Grade Corporate Bonds	[____]%	Minimum rating: [____]
Municipal Bonds	[____]%	Minimum rating: [____]
Money Market Funds	[____]%	SEC-registered, rated [____]
Certificates of Deposit	[____]%	FDIC-insured up to applicable limits
Equities (Common Stock)	[____]%	Exchange-listed, diversified
Mutual Funds / ETFs	[____]%	As consistent with above classes
Real Estate	[____]%	Subject to Commissioner approval
Other: [________________]	[____]%	[________________________________]

6.4 Investment Restrictions

The following investments are prohibited unless expressly approved by the Board of Directors and the Commissioner of Insurance:

☐ Derivatives and options (except for hedging purposes)
☐ Commodities and futures contracts
☐ Private placements and venture capital
☐ Securities of the parent organization or affiliates
☐ Real property not used in the Company's operations
☐ Foreign currency-denominated securities
☐ Margin transactions or short selling
☐ Any investment prohibited by domicile state law

6.5 Diversification Requirements

• No single issuer (other than U.S. Government) shall represent more than [____]% of total invested assets
• No single industry sector shall represent more than [____]% of total invested assets
• Total equity exposure shall not exceed [____]% of total invested assets

6.6 Investment Authority and Oversight

Role	Responsible Party	Authority
Investment Policy Approval	Board of Directors	Approve and amend IPS
Investment Manager Selection	Board / Investment Committee	Select and monitor managers
Day-to-Day Management	[________________________________]	Execute within IPS guidelines
Performance Reporting	Investment Manager / Captive Manager	Quarterly reports to Board
Compliance Monitoring	Captive Manager	Ongoing compliance verification

6.7 Review and Amendment

This IPS shall be reviewed at least annually by the Board of Directors and amended as necessary to reflect changes in market conditions, regulatory requirements, or the Company's financial condition.

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PART 7: RISK MANAGEMENT POLICY

RISK MANAGEMENT POLICY OF [________________________________]

Adopted: [__/__/____]

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7.1 Purpose

This Risk Management Policy establishes the framework for identifying, assessing, mitigating, and monitoring the risks insured by the Company and the operational risks inherent in the Company's business.

7.2 Risk Identification

7.2.1 Insured Risks

Risk Category	Description	Current Controls	Risk Rating (H/M/L)
[________________________________]	[________________________________]	[________________________________]	[____]
[________________________________]	[________________________________]	[________________________________]	[____]
[________________________________]	[________________________________]	[________________________________]	[____]
[________________________________]	[________________________________]	[________________________________]	[____]
[________________________________]	[________________________________]	[________________________________]	[____]

7.2.2 Operational Risks

Risk	Mitigation Strategy
Underwriting Risk	Actuarial pricing, reinsurance, policy limits
Reserving Risk	Independent actuarial review, reserve margin
Investment Risk	Investment policy constraints, diversification
Regulatory Risk	Compliance monitoring, experienced captive manager
Credit Risk	Reinsurer credit evaluation, collateral requirements
Liquidity Risk	Asset-liability matching, cash reserve targets
Operational Risk	Internal controls, segregation of duties, audits
Catastrophe Risk	Aggregate stop-loss reinsurance, geographic diversification

7.3 Loss Control Standards

The parent organization and all insureds shall maintain the following minimum loss control standards:

☐ Written safety and risk management manual
☐ Designated risk manager or safety officer
☐ Regular workplace safety inspections (frequency: [________________])
☐ Employee safety training program (frequency: [________________])
☐ Incident investigation and root cause analysis procedures
☐ Corrective action tracking and follow-up
☐ Annual risk management program review
☐ Property protection and fire prevention measures
☐ Business continuity and disaster recovery plans
☐ Contractual risk transfer requirements for vendors and subcontractors

7.4 Claims Management Protocol

7.4.1 Reporting Requirements

Event	Reporting Deadline	Report To
Occurrence / Incident	Within [____] hours	[________________________________]
Formal Claim / Suit	Within [____] business days	[________________________________]
Catastrophic Event (> $[________])	Immediately	Board of Directors, Captive Manager, Reinsurer
Regulatory Inquiry	Within [____] business days	Legal Counsel, Captive Manager

7.4.2 Claims Authority

Settlement Amount	Authority Level
Up to $[________]	Claims Administrator
$[________] to $[________]	Captive Manager
$[________] to $[________]	President / CEO
Over $[________]	Board of Directors

7.5 Annual Risk Assessment

The Company shall conduct an annual comprehensive risk assessment that includes:

☐ Review of all insured risk categories and exposure trends
☐ Actuarial analysis of loss development and reserve adequacy
☐ Reinsurance program adequacy review
☐ Investment portfolio risk assessment
☐ Regulatory compliance audit
☐ Operational risk evaluation
☐ Catastrophe modeling and stress testing
☐ Updated risk register and heat map
☐ Board presentation and action plan

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PART 8: CAPITALIZATION WORKSHEET

8.1 Minimum Statutory Capital Requirements

Complete the following based on your selected domicile and captive type:

Selected Domicile: [________________________________]
Captive Type: [________________________________]
Statutory Minimum Capital & Surplus: $[________________________________]
Commissioner-Required Additional Capital: $[________________________________]
Total Required Capital: $[________________________________]

8.2 Capital Sources

Source	Amount	Form	Terms
Cash Contribution	$[________________________________]	Wire transfer	[________________]
Irrevocable Letter of Credit	$[________________________________]	Bank LOC	Issuing Bank: [________________]
Marketable Securities	$[________________________________]	Transfer	Custodian: [________________]
Trust Account	$[________________________________]	Trust agreement	Trustee: [________________]
Surplus Note	$[________________________________]	Promissory note	Terms: [________________]
Total Capital	$[________________________________]

8.3 Capital Adequacy Analysis

Factor	Amount
Statutory Minimum	$[________________________________]
Actuarial Recommended Capital	$[________________________________]
Risk-Based Capital (if applicable)	$[________________________________]
Target Capital (including margin)	$[________________________________]
Planned Initial Capitalization	$[________________________________]
Excess / (Shortfall)	$[________________________________]

8.4 Letter of Credit Requirements (if applicable)

Requirement	Details
Issuing Bank	[________________________________]
LOC Amount	$[________________________________]
Term	[____] months, auto-renewing
Beneficiary	Commissioner of Insurance, State of [________________]
Clean / Standby	☐ Clean ☐ Standby
Annual Fee	[____]% of face amount
Collateral Required	$[________________________________]

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PART 9: DOMICILE COMPARISON TABLE

Top U.S. Captive Insurance Domiciles

Factor	Vermont	Delaware	Hawaii	South Carolina	Tennessee	Utah	Nevada
Statutory Authority	8 V.S.A. Ch. 141	18 Del. C. Ch. 69	HRS § 431 Art. 19	S.C. Code § 38-90	Tenn. Code § 56-13	Utah Code § 31A-37	NRS § 694C
Year Enacted	1981	1988	1986	2000	1978	2003	1999
Active Captives (approx.)	650+	400+	250+	200+	200+	400+	150+
MINIMUM CAPITALIZATION
Pure Captive	$250,000	$250,000	$250,000	$250,000	$250,000	$250,000	$200,000
Association Captive	$500,000	$750,000	$500,000	$750,000	$500,000	$500,000	$500,000
Industrial Insured	$500,000	$500,000	$500,000	$500,000	$500,000	$500,000	$500,000
Agency Captive	$250,000	$250,000	N/A	N/A	$250,000	$250,000	N/A
Sponsored / Cell	$100,000	$500,000	$250,000	Director-set	$250,000	$250,000	$200,000
Risk Retention Group	$1,000,000	$1,000,000	$1,000,000	$1,000,000	$1,000,000	$1,000,000	$1,000,000
PREMIUM TAX
First $20M	0.38%	0.25%	0.25%	0.25%	0.25%	0.25%	0.25%
$20M-$40M	0.285%	0.15%	0.15%	0.15%	0.15%	0.15%	0.15%
$40M-$60M	0.19%	0.10%	0.05%	0.10%	0.10%	0.05%	0.10%
Over $60M	0.072%	0.05%	0.00%	0.05%	0.05%	0.025%	0.05%
Minimum Tax	$7,500	$5,000	None	$5,000	$5,000	$5,000	$5,000
Maximum Tax	$200,000	$200,000	$200,000	$100,000	$100,000	$200,000	$175,000
APPLICATION & FEES
Application Fee	$500	$300	$1,000	$500	$500	$500	$500
License Fee	$300	$400	$300	$300	$250	$300	$500
Annual Renewal Fee	$300	$400	$300	$300	$250	$300	$500
Processing / Review Fee	Included	$3,200	Included	Included	Included	Included	Included
ALLOWED STRUCTURES
Pure Captive	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Association Captive	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Industrial Insured	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Sponsored / Cell	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Agency Captive	Yes	Yes	No	No	Yes	Yes	No
Risk Retention Group	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Branch Captive	Yes	Yes	No	No	Yes	No	No
Series Captive	No	Yes	No	No	No	No	No
REGULATORY FEATURES
Resident Director Req'd	Yes	Yes	No	Yes (2 at mtg)	Yes	Yes	Yes
In-State Meeting Req'd	Yes	No	No	Yes (annual)	No	No	No
Annual Audit Required	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Exam Frequency	5 years	5 years	5 years	5 years (RRG)	5 years	5 years	5 years
Annual Report Due	March 1	June 1	March 1	March 1 / July 1	March 1	March 1	March 1
LOC Accepted as Capital	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Incorporator Residence	Any	Any	Any	Any	Any	Any	Any

Notes:
- Capitalization requirements are statutory minimums; regulators may require additional capital based on risk profile and business plan.
- Premium tax rates and tiers vary and may be updated by legislative action. Verify current rates with domicile regulators.
- Some domiciles offer reduced premium taxes for captives that reinsure a significant portion of premiums.
- Active captive counts are approximate and change annually.

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PART 10: REGULATORY APPLICATION CHECKLIST

10.1 Pre-Application Phase

☐ Engage qualified captive insurance counsel
☐ Engage licensed captive management company
☐ Engage qualified actuary (FCAS or equivalent)
☐ Conduct feasibility study
☐ Select domicile state
☐ Select captive type and organizational structure
☐ Determine lines of coverage and coverage limits
☐ Compile 5-year loss history for all proposed lines
☐ Obtain preliminary actuarial pricing analysis
☐ Draft business plan
☐ Prepare pro forma financial statements (5-year projections)
☐ Identify initial board of directors and officers
☐ Identify resident director / registered agent in domicile state
☐ Determine initial capitalization amount and sources
☐ Pre-application conference with domicile regulator (recommended)

10.2 Application Filing — Required Documents

☐ Completed captive insurance company license application (domicile-specific form)
☐ Application fee payment
☐ Articles of Incorporation / Articles of Organization (executed but not yet filed)
☐ Bylaws / Operating Agreement
☐ Comprehensive business plan
☐ Actuarial feasibility study and premium rate analysis
☐ Pro forma financial statements (minimum 3-5 years)
☐ Investment policy statement
☐ Description of reinsurance program
☐ Loss history summaries and loss runs
☐ Biographical affidavits for all directors and officers
☐ Background check authorization forms
☐ Captive management agreement (or draft)
☐ Evidence of proposed capitalization (bank statements, LOC commitment letters)
☐ Description of risk management and loss control programs
☐ Sample policy forms and endorsements
☐ Organizational chart (parent, affiliates, captive, service providers)
☐ Certificate of Good Standing for parent entity
☐ IRS Employer Identification Number (EIN) application or confirmation
☐ Designation of registered agent in domicile state
☐ Anti-fraud plan (if required by domicile)
☐ OFAC compliance certification (if required)

10.3 Post-Approval — Formation Completion

☐ Receive Certificate of Authority / License from domicile regulator
☐ File Articles of Incorporation / Organization with Secretary of State
☐ Obtain Certificate of Good Standing
☐ Fund initial capitalization (wire transfer, LOC issuance, securities transfer)
☐ File evidence of capitalization with regulator
☐ Open business bank account(s) and investment account(s)
☐ Execute captive management agreement
☐ Execute actuarial services agreement
☐ Execute audit engagement letter
☐ Execute investment management agreement
☐ Bind reinsurance program
☐ Issue policies to insureds
☐ Establish claims reporting procedures
☐ Hold organizational board meeting
☐ Adopt bylaws, investment policy, and risk management policy
☐ Elect officers
☐ File initial premium tax returns (if required)
☐ Obtain federal EIN (if not already obtained)
☐ File IRS Form 8832 (Entity Classification Election), if applicable
☐ Make IRC § 831(b) election, if applicable (see Part 12)
☐ Register with state Department of Revenue (if required)
☐ Notify domicile regulator of operational commencement

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PART 11: ANNUAL COMPLIANCE CALENDAR

Recurring Obligations by Month

Month	Obligation	Responsible Party	Status
January
	Begin preparation of annual financial statements	Captive Manager / Auditor	☐
	Compile year-end loss data for actuarial review	Captive Manager	☐
	Renew reinsurance program (if calendar year)	Captive Manager / Broker	☐
	Review and renew investment policy	Board / Investment Advisor	☐
February
	Actuarial reserve analysis and opinion	Actuary	☐
	Complete annual audit fieldwork	Auditor	☐
	Prepare annual statement (statutory basis)	Captive Manager	☐
March
	File annual statement with domicile regulator	Captive Manager	☐
	File premium tax return and payment	Captive Manager	☐
	File annual report with Secretary of State (if required)	Captive Manager	☐
	Federal income tax return (Form 1120-PC) or extension	Tax Advisor	☐
April
	Annual board of directors meeting	Board	☐
	Review and approve audited financial statements	Board	☐
	Review actuarial opinion and reserve adequacy	Board	☐
	Annual shareholder meeting	Shareholders	☐
	Elect directors and officers for ensuing year	Shareholders / Board	☐
May
	Mid-year risk management review	Captive Manager	☐
	Review loss development and emerging trends	Captive Manager / Actuary	☐
June
	Semi-annual investment portfolio review	Investment Advisor / Board	☐
	Mid-year financial review	Captive Manager	☐
	File annual report (Delaware domiciles: June 1 deadline)	Captive Manager	☐
July
	File annual report (SC non-RRG domiciles: July 1 deadline)	Captive Manager	☐
	Mid-year board meeting (recommended)	Board	☐
	Review reinsurance program for renewal planning	Captive Manager / Broker	☐
August
	Begin renewal underwriting process	Captive Manager / Actuary	☐
	Update loss projections for current year	Actuary	☐
September
	Quarterly board meeting (recommended)	Board	☐
	Review premium adequacy for renewal year	Actuary	☐
	Federal estimated tax payment (if applicable)	Tax Advisor	☐
October
	Prepare renewal business plan and premium proposals	Captive Manager	☐
	Annual loss control audit / risk assessment	Risk Manager	☐
	Confirm domicile annual license renewal	Captive Manager	☐
November
	Board approval of renewal insurance program	Board	☐
	Board approval of renewal premiums	Board	☐
	Execute renewal policies and reinsurance	Captive Manager	☐
	Review and update claims reserves	Captive Manager / Actuary	☐
December
	Year-end investment portfolio review	Investment Advisor	☐
	Year-end reserve review and adjustments	Captive Manager / Actuary	☐
	Pay annual license renewal fees	Captive Manager	☐
	Update corporate records and minutes	Secretary	☐
	Dividend / distribution analysis (if applicable)	Board / Tax Advisor	☐
	Annual review of service provider contracts	Captive Manager	☐

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PART 12: TAX ELECTION CONSIDERATIONS — IRC § 831(b) ANALYSIS

12.1 Overview of IRC § 831(b) Micro-Captive Election

Under IRC § 831(b), a qualifying insurance company with annual net written premiums (or direct written premiums, if greater) not exceeding $2,200,000 (adjusted annually for inflation) may elect to be taxed only on its taxable investment income rather than on its total underwriting and investment income. This election effectively exempts underwriting income from federal income tax.

12.2 Qualification Requirements

12.2.1 Premium Threshold

Tax Year	Premium Limit	Source
2017-2023	$2,200,000 (base)	IRC § 831(b)(2)(A)(i)
2024+	Inflation-adjusted (rounded to nearest $50,000)	IRC § 831(b)(2)(C)
Current Year: 20[____]	$[________________________________]	Verify with IRS guidance

12.2.2 Diversification Requirement

The Company must satisfy one of the following two tests:

Test 1 — Risk Diversification (20% Test):
☐ No single policyholder accounts for more than 20% of the Company's net written premiums for the taxable year.

Test 2 — Ownership/Risk Correlation Test:
☐ If the 20% test is not met, the ownership interests of specified holders in the captive do not exceed a de minimis percentage above their ownership interests in the specified assets or specified liabilities giving rise to the insured risks.

12.2.3 Election Mechanics

• The election is made on the Company's federal income tax return (Form 1120-PC) for the first taxable year to which it applies
• Once made, the election applies for the election year and all subsequent years in which the premium and diversification requirements are met
• The election is automatically revoked for any year in which the requirements are not satisfied
• Net operating losses may not be carried to or from any year in which the § 831(b) election is in effect

12.3 IRS Scrutiny — Micro-Captive Transactions of Interest

WARNING: The IRS has designated certain micro-captive insurance arrangements as "transactions of interest" under IRS Notice 2016-66. Participants, material advisors, and promoters may have reporting obligations under IRC §§ 6011, 6111, and 6112. Failure to disclose may result in substantial penalties.

12.3.1 Notice 2016-66 Reportable Indicators

The IRS has identified the following characteristics that may trigger heightened scrutiny:

☐ Captive insures risks of a single insured or small group of related insureds
☐ Premiums are at or near the § 831(b) threshold
☐ Loss ratios are consistently low (well below industry averages)
☐ Coverage is for unusual or hard-to-value risks (e.g., "tax liability insurance," "reputation damage")
☐ Actuarial analysis relies primarily on "benchmarking" rather than the insured's actual loss experience
☐ Captive accumulates significant surplus without making claims payments
☐ Loans from the captive back to the insured or related parties
☐ Captive investment strategy benefits the insured or related parties (e.g., captive invests in related-party assets)
☐ Formation was promoted as a "tax savings" strategy rather than a risk management strategy

12.3.2 Reporting Obligations

Obligation	Form	Who Must File	Deadline
Disclosure by Participant	Form 8886	Each participant (insured, captive)	Attached to tax return; first year and each subsequent year
Material Advisor Disclosure	Form 8918	Material advisors (captive managers, promoters, advisors)	Within 60 days of becoming a material advisor
List Maintenance	IRC § 6112	Material advisors	Maintained and produced upon IRS request within 20 business days

12.3.3 Penalties for Non-Disclosure

Violation	Penalty
Failure to file Form 8886 (individual)	$10,000 per failure
Failure to file Form 8886 (entity)	$50,000 per failure
Failure to file Form 8918	$50,000 per failure
Failure to maintain/produce investor lists	$10,000 per day (max: $100,000 per request)

12.4 Alternative: IRC § 501(c)(15) Tax Exemption

Small insurance companies (other than life) may qualify for complete federal income tax exemption under IRC § 501(c)(15) if:

Requirement	Standard Insurance Company	Mutual Insurance Company
Maximum Gross Receipts	$600,000	$150,000
Premium Ratio	> 50% of gross receipts must be premiums	> 35% of gross receipts must be premiums

Limitations:
- The exemption is significantly more restrictive than the § 831(b) election
- Controlled group rules apply (aggregate gross receipts of all group members)
- Related-party employee restrictions apply
- The low gross receipts thresholds make this election impractical for most captives

12.5 Tax Election Decision Matrix

Factor	§ 831(b) Election	§ 501(c)(15) Exemption	Standard Taxation
Premium Limit	~$2,200,000+ (inflation adjusted)	$600,000 gross receipts	No limit
Tax on Underwriting Income	Exempt	Exempt	Taxed at corporate rate
Tax on Investment Income	Taxed at corporate rate	Exempt	Taxed at corporate rate
NOL Carryforward	Not available	Not applicable	Available
Diversification Requirement	Yes (20% test or alternative)	No	No
IRS Reporting (Notice 2016-66)	Potentially required	Generally not applicable	Generally not applicable
Best For	Mid-size captives with moderate premiums	Very small captives	Large captives

12.6 § 831(b) Election Worksheet

Item	Amount
Projected Net Written Premiums	$[________________________________]
Projected Direct Written Premiums	$[________________________________]
Greater of Net or Direct	$[________________________________]
Current § 831(b) Threshold	$[________________________________]
Under Threshold?	☐ Yes ☐ No
Diversification Test
Total Number of Policyholders	[________________________________]
Largest Single Policyholder Premium	$[________________________________]
Largest Policyholder % of Total	[____]%
Satisfies 20% Test?	☐ Yes ☐ No
If No, Satisfies Alternative Test?	☐ Yes ☐ No ☐ N/A
Tax Impact Estimate
Projected Underwriting Income	$[________________________________]
Projected Investment Income	$[________________________________]
Tax Under § 831(b) (investment income x rate)	$[________________________________]
Tax Under Standard (total income x rate)	$[________________________________]
Estimated Annual Tax Savings	$[________________________________]
Risk Assessment
Notice 2016-66 Indicators Present	☐ None ☐ 1-2 ☐ 3+
Disclosure Filing Required?	☐ Yes ☐ No ☐ Uncertain
IRS Audit Risk Level	☐ Low ☐ Moderate ☐ High

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PART 13: BOARD RESOLUTION TEMPLATES

Resolution 13.1 — Formation and Incorporation

RESOLUTION OF THE BOARD OF DIRECTORS OF [________________________________] (PARENT ENTITY)

RESOLVED, that the Board of Directors of [________________________________] (the "Parent") hereby authorizes the formation and incorporation of a captive insurance company under the name [________________________________] (the "Captive"), to be domiciled in the State of [________________] and organized under the captive insurance laws of said State;

FURTHER RESOLVED, that the Captive shall be organized as a [☐ stock corporation / ☐ limited liability company / ☐ other: ________________] and shall be wholly owned by the Parent;

FURTHER RESOLVED, that the Parent shall capitalize the Captive with an initial investment of $[________________________________], consisting of [cash / letter of credit / securities / combination thereof], which amount satisfies or exceeds the minimum capitalization requirement of the State of [________________];

FURTHER RESOLVED, that the officers of the Parent are hereby authorized and directed to take all actions and execute all documents necessary or appropriate to effectuate the formation of the Captive, including but not limited to the filing of Articles of Incorporation, the submission of a license application to the [________________] Department of Insurance, the execution of a captive management agreement, and the engagement of actuarial, legal, audit, and other professional service providers;

FURTHER RESOLVED, that the following individuals are hereby designated as the initial Board of Directors of the Captive:

Name	Title	Resident State
[________________________________]	Director	[________________]
[________________________________]	Director	[________________]
[________________________________]	Director	[________________]

ADOPTED by the Board of Directors on [__/__/____].

________________________________________
Secretary: [________________________________]

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Resolution 13.2 — Adoption of Insurance Program

RESOLUTION OF THE BOARD OF DIRECTORS OF [________________________________] (CAPTIVE)

RESOLVED, that the Board of Directors of [________________________________] (the "Company") hereby approves the insurance program for the policy year commencing [__/__/____] and ending [__/__/____], as detailed in the business plan presented to the Board and incorporated herein by reference;

FURTHER RESOLVED, that the Company shall issue policies of insurance covering the following lines of business at the following annual premiums:

Line of Coverage	Insured(s)	Annual Premium	Policy Limit
[________________________________]	[________________]	$[________]	$[________]
[________________________________]	[________________]	$[________]	$[________]
[________________________________]	[________________]	$[________]	$[________]

FURTHER RESOLVED, that the premiums set forth above have been determined on a sound actuarial basis as reflected in the actuarial study prepared by [________________________________], dated [__/__/____], a copy of which is on file with the Company's records;

FURTHER RESOLVED, that the officers and captive manager are authorized to bind reinsurance coverage, issue policies, and take all actions necessary to implement the approved insurance program.

ADOPTED by the Board of Directors on [__/__/____].

________________________________________
Secretary: [________________________________]

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Resolution 13.3 — IRC § 831(b) Election

RESOLUTION OF THE BOARD OF DIRECTORS OF [________________________________] (CAPTIVE)

RESOLVED, that the Board of Directors of [________________________________] (the "Company"), having reviewed the analysis prepared by [________________________________] (tax advisor) regarding the eligibility and advisability of an election under IRC § 831(b), hereby authorizes the Company to make an election under IRC § 831(b) on the Company's federal income tax return for the taxable year ending [__/__/____];

FURTHER RESOLVED, that the Board has determined that:

(a) The Company's net written premiums (or direct written premiums, if greater) for the taxable year are projected to be $[________________________________], which does not exceed the applicable threshold under IRC § 831(b)(2)(A)(i);

(b) The Company satisfies the diversification requirement of IRC § 831(b)(2)(B) under [☐ the 20% test / ☐ the alternative ownership correlation test]; and

(c) The election is in the best interests of the Company and its shareholder(s);

FURTHER RESOLVED, that the officers and tax advisors are authorized to prepare and file all tax returns and disclosures necessary to effectuate the election, including Form 1120-PC and, to the extent applicable, Form 8886 under IRS Notice 2016-66;

FURTHER RESOLVED, that the tax advisor shall annually verify the Company's continued eligibility for the § 831(b) election and shall promptly notify the Board if the Company fails to satisfy the eligibility requirements for any taxable year.

ADOPTED by the Board of Directors on [__/__/____].

________________________________________
Secretary: [________________________________]

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Resolution 13.4 — Adoption of Investment Policy

RESOLUTION OF THE BOARD OF DIRECTORS OF [________________________________] (CAPTIVE)

RESOLVED, that the Board of Directors of [________________________________] (the "Company") hereby adopts the Investment Policy Statement presented to the Board at this meeting, a copy of which is attached hereto and incorporated herein by reference;

FURTHER RESOLVED, that the Company's assets shall be invested in accordance with the Investment Policy Statement, the captive insurance laws of the State of [________________], and the directives of the Board;

FURTHER RESOLVED, that [________________________________] is hereby appointed as the Company's investment advisor/manager, subject to the terms of an investment management agreement to be approved by the Board;

FURTHER RESOLVED, that the investment advisor/manager shall provide quarterly reports to the Board regarding investment performance, portfolio composition, and compliance with the Investment Policy Statement.

ADOPTED by the Board of Directors on [__/__/____].

________________________________________
Secretary: [________________________________]

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Resolution 13.5 — Dividend / Distribution Authorization

RESOLUTION OF THE BOARD OF DIRECTORS OF [________________________________] (CAPTIVE)

RESOLVED, that the Board of Directors of [________________________________] (the "Company"), having reviewed the Company's financial condition, surplus position, and regulatory requirements, hereby authorizes a [☐ dividend / ☐ distribution] to the Company's shareholder(s) in the amount of $[________________________________], payable on or about [__/__/____];

FURTHER RESOLVED, that the Board has determined that:

(a) Following the distribution, the Company will maintain capital and surplus in excess of the statutory minimum required by the State of [________________];

(b) The distribution will not impair the Company's ability to meet its policyholder obligations and operating expenses as they become due;

(c) The distribution is consistent with the Company's approved business plan and actuarial projections;

(d) [☐ Prior regulatory approval has been obtained / ☐ Prior regulatory approval is not required under applicable law / ☐ Regulatory notification has been filed];

FURTHER RESOLVED, that the officers and captive manager are authorized to take all actions necessary to effectuate the distribution.

ADOPTED by the Board of Directors on [__/__/____].

________________________________________
Secretary: [________________________________]

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PART 14: SOURCES AND REFERENCES

Federal Statutory and Regulatory Authorities

• IRC § 831(b) — Alternative tax for certain small insurance companies (micro-captive election). Permits qualifying companies with premiums not exceeding ~$2,200,000 (inflation-adjusted) to be taxed only on investment income.
• IRC § 501(c)(15) — Tax exemption for small non-life insurance companies with gross receipts not exceeding $600,000.
• IRC § 162 — Deductibility of insurance premiums as ordinary and necessary business expenses.
• IRC § 832 — Insurance company taxable income computation.
• IRS Notice 2016-66 — Identifies certain micro-captive insurance transactions as "transactions of interest" subject to disclosure requirements under Treas. Reg. §§ 1.6011-4, 301.6111-3, and 301.6112-1.
• 15 U.S.C. § 3901 et seq. — Liability Risk Retention Act of 1986 (governing risk retention groups).

State Captive Insurance Statutes

State	Citation	Regulator
Vermont	8 V.S.A. Chapter 141, §§ 6001-6049m	VT Department of Financial Regulation
Delaware	18 Del. C. Chapter 69	DE Department of Insurance
Hawaii	HRS § 431, Article 19	HI Department of Commerce & Consumer Affairs, Insurance Division
South Carolina	S.C. Code Ann. §§ 38-90-10 to 38-90-610	SC Department of Insurance
Tennessee	Tenn. Code Ann. §§ 56-13-101 to 56-13-115	TN Department of Commerce & Insurance
Utah	Utah Code Ann. §§ 31A-37-101 to 31A-37-603	UT Insurance Department, Captive Insurance Division
Nevada	Nev. Rev. Stat. §§ 694C.010 to 694C.450	NV Division of Insurance

Key IRS and Tax Guidance

• Avrahami v. Commissioner, 149 T.C. 144 (2017) — IRS victory challenging micro-captive arrangement; court found premiums were not deductible where captive lacked adequate risk distribution and actuarial support.
• Reserve Mechanical Corp. v. Commissioner, T.C. Memo. 2018-86 — IRS victory; court disallowed premium deductions where micro-captive insured implausible risks at inflated premiums.
• IRS Rev. Rul. 2002-89, 2002-90, 2002-91 — IRS guidance on risk distribution requirements for captive insurance arrangements.
• Helvering v. Le Gierse, 312 U.S. 531 (1941) — Supreme Court standard: insurance requires risk shifting and risk distribution.

Professional Organizations

• Captive Insurance Companies Association (CICA) — https://www.cicaworld.com
• Vermont Captive Insurance Association (VCIA) — https://www.vcia.com
• Self-Insurance Institute of America (SIIA) — https://www.siia.org
• National Association of Insurance Commissioners (NAIC) — https://www.naic.org
• Casualty Actuarial Society (CAS) — https://www.casact.org

Recommended Professional Advisors

The following categories of professional advisors should be engaged in connection with the formation and operation of a captive insurance company:

Advisor	Role	Qualifications
Insurance Counsel	Legal formation, regulatory compliance, policy drafting	Licensed attorney with captive insurance experience
Captive Manager	Day-to-day operations, regulatory filings, financial reporting	Licensed/registered in domicile state
Actuary	Premium determination, reserve analysis, feasibility studies	FCAS (Fellow, Casualty Actuarial Society) or equivalent
Auditor	Annual financial statement audit (statutory basis)	CPA firm with insurance audit experience
Tax Advisor	Federal and state tax compliance, § 831(b) analysis	CPA or tax attorney with insurance company experience
Investment Advisor	Portfolio management within IPS guidelines	SEC-registered investment advisor
Reinsurance Broker	Placement of reinsurance program	Licensed surplus lines / reinsurance intermediary

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IMPORTANT NOTICES

Legal Disclaimer: This Captive Insurance Company Formation Document Kit is provided for informational and planning purposes only. It does not constitute legal, tax, actuarial, or insurance advice. The formation and operation of a captive insurance company involves complex legal, regulatory, tax, and actuarial considerations that vary significantly by jurisdiction and by the specific circumstances of the proposed captive and its insureds. Users of this document kit must engage qualified legal counsel, captive managers, actuaries, auditors, and tax advisors before forming or operating a captive insurance company. All statutory citations, capitalization requirements, tax thresholds, and regulatory procedures should be independently verified with current authorities, as laws and regulations are subject to change.

IRS Compliance Notice: Micro-captive insurance arrangements have been subject to heightened IRS enforcement activity. IRS Notice 2016-66 designates certain micro-captive transactions as "transactions of interest" subject to mandatory disclosure requirements. Failure to comply with applicable disclosure requirements may result in substantial penalties. Captive insurance arrangements must be established and operated for bona fide insurance purposes with adequate risk shifting, risk distribution, and arm's-length actuarial pricing to be respected for federal income tax purposes.

Regulatory Notice: Captive insurance companies are regulated entities. Operating a captive insurance company without proper licensing constitutes the unauthorized transaction of insurance, which is a violation of state law and may result in civil and criminal penalties. All captive insurance companies must obtain and maintain a certificate of authority or license from the domicile state insurance regulator before commencing insurance operations.

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This template is provided by ezel.ai for informational purposes. It is not a substitute for professional legal, tax, or actuarial advice. Consult qualified professionals before forming a captive insurance company.