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Proposed Legislation Could Increase Tax Breaks for Small Insurers, Captives Under Section 831(b)

Posted on: June 6, 2014 by Caitlin Morgan

Proposed Legislation Could Increase Tax Breaks for Small Insurers, Captives Under Section 831(b)

Proposed Legislation Could Increase Tax Breaks for Small Insurers, Captives Under Section 831(b)

Last month, federal legislation was filed in Congress that would give small mutual Property/ Casualty insurers that serve rural communities a tax break under Section 831(b) of the Internal Revenue Code. Right now, under the code, those companies whose premiums do not exceed $1.2 million per year can elect to be taxed on their net investment income as opposed to their premium income. The new legislation would raise the investment income election threshold to $2.12 million, accounting for inflation and tie-ing it into the inflation rate going forward.

The National Association of Mutual Insurance Companies (NAMIC) supports such legislation, citing that the provision has been in existence for close to 100 years but last updated with the 1986 major tax reform. “During nearly three decades of economic growth, the eligibility cap for the tax election has become increasingly difficult for companies to stay under, meaning funds that could be used to pay claims to their local members are instead being sent to Washington,” said Jimi Grande, senior vice president of federal and political affairs for NAMIC. “This legislation eases that burden to allow these companies to continue protecting the farms and families they have served for more than 100 years.”

This proposed legislation is also good news for small-sized companies that have chosen to make an 831(b) election in their micro or mini captive, whether to a single parent, group, RRG, etc. Under this new legislation if it passes, these small captives would have more money to distribute after the payment of losses and expenses.

We’ll keep you posted on progress on this legislation and the impact it would have on small captives taking the 831(b) election. Caitlin Morgan specializes in setting up captives of all types and can help you determine if a captive solution is right for your clients. Give us a call at: 877.226.1027.

Sources: Insurance Journal, NAMIC

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Posted in: Captive Solutions