In 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 may be allowed to outsource the acceptance of insurance risk to an associated enterprise that acts as a broker and receives an arm’s length remuneration), special consideration of the retention by the captive insurance of the control functions would be required in order to conclude whether the risk is allocated to the captive insurance. A captive insurance that outsources all aspects of the underwriting process without performing control functions would not assume the insurance risk under Chapter I analysis ... Read more

Part 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 risk. These activities would imply, inter alia, deciding to underwrite a risk or not and under what terms and conditions, or whether reinsurance protection should be purchased or not. On prevailing facts and circumstances, those activities may be considered as control functions as described in paragraph 1.65 of Chapter I and, if exercised by a captive insurance that possesses the financial capacity to assume the risk, would lead to the allocation of risk to the captive insurance under Chapter I analysis. Notably, the mere setting of parameters or the policy environment for the risk would not qualify as control functions for this purpose (see paragraph 1.66 of Chapter I, and ... Read more

In 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 may be allowed to outsource the acceptance of insurance risk to an associated enterprise that acts as a broker and receives an arm’s length remuneration), special consideration of the retention by the captive insurance of the control functions would be required in order to conclude whether the risk is allocated to the captive insurance. A captive insurance that outsources all aspects of the underwriting process without performing control functions would not assume the insurance risk under Chapter I analysis ... Read more