Captive and Parent Company Cash Flow

March 23, 2020

During these unprecedented and trying times, organizations are faced with innumerable challenges including the safety and well-being of their teammates and families as well as continuity in delivering high-level service to their clients. Social distancing and other measures, including closure of gathering places (events, bars, restaurants, etc.), have contributed to an obvious economic slowdown. For companies with well-capitalized captive insurance, there are ways the captive could help address cash flow needs through loans, dividends, or sale of old liabilities.

Regulatory Compliance and Solvency 

When considering a loan or dividend, the captive must evaluate the implications on capital and surplus and solvency ratios. In addition, whether it be a loan or dividend, such transaction is subject to regulatory approval prior to executing it. If a captive is very close to meeting its capital and surplus and solvency requirements, then a loan or dividend may not be the solution. The captive needs to always be in a position to meet its current and future obligations.

Loans to Parent or Affiliate 

Loans typically require the parent or affiliate borrower to be well rated and/or financially strong (if no rating information is available). Depending on jurisdiction, a loan may be considered a non-relevant asset – meaning it is deducted from capital and surplus for ratio and solvency calculations. In addition, a loan could impact a captive’s tax position if it is believed to qualify as an insurance company for tax purposes. Most tax advisors have suggested loans not be greater than 30 to 50 percent of investable assets.


Dividends, while still requiring regulatory approval and ratio and solvency consideration, are typically a bit cleaner for a well-capitalized captive. A similar analysis needs to be performed to ensure the captive will remain financially strong following the dividend prior to submitting for regulatory approval. Depending on ownership, the tax professionals should be consulted to ensure there are no adverse implications.

Outside the Box 

Another opportunity to consider is the selling off of historical liabilities to free up “trapped” cash. With a captive maintaining all of the assets necessary to satisfy old liabilities (as well as current) and the required capital and surplus on top of that, selling off old liabilities may result in a freeing up of the capital and surplus required to support the old liabilities. The process can take three or more months. While it could be beneficial in the current economic climate, it could also be considered a good business practice to periodically clean up the captive balance sheet.


There are a number of considerations with respect to loans, dividends, or selling old liabilities. Please do not hesitate to reach out, so we can help you evaluate possible benefits for your company.

This article is intended for informational purposes only. It is not a guarantee of coverage and should not be used as a substitute for an individualized assessment of one’s need for insurance or alternative risk services. Nor should it be relied upon as legal advice, which should only be rendered by a competent attorney familiar with the facts and circumstances of a particular matter. Copyright Beecher Carlson Insurance Services, LLC. All Rights Reserved.