The accurate delineation of the actual transaction in scenarios involving captive insurance requires identifying whether the captive insurance is performing control functions regarding the economically significant risks associated to the underwriting function – in particular the insurance risk – to determine whether those risks should be allocated to the captive.
TPG2020 Chapter X paragraph 10.210
Posted on | By OECD
Category: OECD Transfer Pricing Guidelines (2017) | Tag: Captive insurance, Economically significant risks, Financial transactions
« Prev |
Next » Related Guidelines
- TPG2022 Chapter X paragraph 10.202From the captive insurance’s perspective, the fact that the captive insurance is exposed to the downside outcome of the insured risk and to the possibility of significant loss could be an indicator that the insurance risk has been assumed by the captive insurance. In addition, the assumption of the insurance...
- TPG2022 Chapter X paragraph 10.213In many cases, outsourcing certain aspects of the underwriting function would be inconsistent with the minimum regulatory standards required to operate an insurance business. However, in those situations where the captive insurance is permitted to outsource some of the activities that constitute the underwriting function (for instance, a captive insurance...
- TPG2022 Chapter X paragraph 10.220The remuneration of the captive insurance can be arrived at by considering the arm’s length profitability of the captive insurance by reference to a two staged approach which takes into account both profitability of claims and return on capital. The first step would be to identify the captive insurance’s combined...
- TPG2022 Chapter X paragraph 10.199A frequent concern when considering the transfer pricing of captive insurance transactions is whether the transaction concerned is genuinely one of insurance, i.e. whether a risk exists and, if so, whether it is allocated to the captive insurance in light of the facts and circumstances. The following are indicators, all...
- TPG2022 Chapter X paragraph 10.210The accurate delineation of the actual transaction in scenarios involving captive insurance requires identifying whether the captive insurance is performing control functions regarding the economically significant risks associated to the underwriting function – in particular the insurance risk – to determine whether those risks should be allocated to the captive....
- TPG2022 Chapter X paragraph 10.214A reinsurance captive is a particular type of captive insurance which does not issue policies directly but operates as a reinsurance under an arrangement known as “fronting”. Captive insurance may not be able to underwrite insurance policies in the same way as traditional insurance companies. For instance, certain insurance risks...
- TPG2022 Chapter X paragraph 10.212When the captive insurance does not have access to the appropriate skills, expertise and resources and, therefore, the captive insurance is not found to exercise control functions related to the risks associated to the underwriting, an analysis under Chapter I, based on facts and circumstances, may conclude that the risk...
- TPG2022 Chapter X paragraph 10.218The application of the CUP method to a transaction involving a captive insurance may encounter practical difficulties to determine the need for and quantification of comparability adjustments. In particular, account should be taken of potential differences between the controlled and uncontrolled transactions that may affect the reliability of the comparables....
- TPG2022 Chapter X paragraph 10.211Part IV of the Report on the Attribution of Profits to Permanent Establishments describes the activities that form part of the underwriting function such as setting the underwriting policies, classifying and selecting the insured risk, setting the premiums (pricing), the analysis of risk retention and the acceptance of the insured...
- TPG2022 Chapter X paragraph 10.221It is important to recognise that the capital adequacy requirements of a captive insurance are likely to be significantly lower than an insurer writing policies for unrelated parties. This factor should be considered and, if necessary, adjusted for in order to determine the appropriate level of capital to use when...