Captive Case Study – Auto Dealerships | Intuitive Captive Solutions


The Situation

Our client is an auto dealership group with multiple brand dealerships. Their operations have expanded steadily due to successful operations over the past 30 years.

The Challenges

The group’s expansion has magnified risks in a number of ways. They’re now exposed to risks that are not currently insured in the third-party marketplace. The commercial insurance market is experiencing price increases and tightening capacity for perils such as directors & officers liability and environmental liability. Increased annual revenues have made the exposure to non-insured risks – like financial guarantees for floor plan – more pronounced. At the same time, new threats emerge regularly that require more coverage, including cyber liability and employment practices issues.

The Solution

The auto dealership group engaged Intuitive Captive Solutions to prepare a feasibility study to review their organizational structure, insurance program, loan documents, and personal guarantees. The study resulted in the identification and quantification of several new personal liability risks and adjustments to the existing commercial insurance program that offset the tightening insurance market conditions. Upon review of the study, the group instructed Intuitive Captive Solutions to form three new 831(b) captives – domestic private insurance companies – to insure selected property, casualty, and personal liability risks.

The captives – controlled by the owners – issued three supplemental commercial insurance policies to the company in exchange for combined fully tax deductible annual premiums in excess of $2,100,000. Though this is in addition to the annual third-party insurance premium expenses the company currently pays, it accomplished several goals:

  • Created a profit center to cover previously unfunded self-insured risk.
  • Gave the owners peace of mind by broadening their insurance coverage.
  • Offset premium dollars going to third-party insurers.
  • Reduced current income tax obligations and created potential additional wealth for the owners and their families.

The Benefits

Three new businesses with additional net profits were formed. The captives resulted in a reduction in current income taxes to the owners of more than $825,000, and also provide an anticipated distribution of the captives’ profits to owners at more favorable tax rates. The auto dealership group is already in receipt of a reinsurance payment on a loss that otherwise would have been totally self-insured.

If we can help you with similar coverages through an 831(b) captive, please contact us.