This white paper serves as a practical guide for understanding the often-complex accounting considerations for investments in captive insurance companies and alternative risk vehicles. It addresses the challenges arising from diverse captive structures and the various accounting frameworks (GAAP, GASB, and SAP) followed by member owners. By outlining the different accounting treatments based on investor type and level of influence, this document aims to equip potential captive investors with the knowledge needed for informed decision-making and productive discussions with stakeholders.
Key Takeaways
- Accounting for captive investments is not always straightforward and depends heavily on the captive’s legal structure and the investor’s accounting framework.
- GAAP investors may use consolidation, the equity method, or fair value/alternative methods based on control or significant influence.
- Governmental entities (following GASB) consider component unit reporting, investment treatment, or the equity method for joint ventures.
- Statutory accounting (SAP) for insurance companies primarily relies on different applications of the equity method based on ownership percentage and audit availability.
- Understanding the accounting implications early in the captive business plan development is crucial for sound financial reporting.
- This paper provides a “road map” organized by investor accounting principles to facilitate productive conversations about accounting treatment.
- Professional consultation and a thorough review of authoritative accounting literature are essential for specific organizational circumstances.
