Accounting, financial reporting, and tax considerations for a captive life insurer;

              ACCOUNTING, FINANCIAL REPORTING, AND TAX CONSIDERATIONS FOR A CAPTIVE LIFE INSURER
Presented before the Annual Meeting of the American Society of Insurance Manage­ment,
Inc., San Francisco-February 1971
by Michael L. Balint Partner, Los Angeles Office
During recent years, some interesting trends have developed in regard to the operation of insurance companies in the general economic environment. Foremost, at least from the standpoint of the volume of publicity, is the formation of holding company complexes by insurance interests to diversify their permitted scope of activities through noninsurance affiliates. Another trend is the acquisition or formation of insurers by noninsurance corpora­tions.
An example is the ownership of life and disability insurers by companies engaged in the sale of equity funding programs or in the consumer finance business.
Still another trend, if it may be considered one at this time, relates to the organizing of "so-called" captive insurance companies, particularly in the property and casualty field. The "so-called" is used advisedly since definitions of a captive range from any controlled insurance subsidiary to a controlled insurer that handles only the risks of a noninsurance parent and its affiliates. There are, of course, a variety of situations, including one in which a prominent company commenced operations by insuring the group benefit program for its own employees as a base for expansion into the insuring of outside risks.
BASIC ASSUMPTIONS
In order to develop a framework for discussion, it will be necessary to agree on the following basic assumptions:
(1) The motivation for insuring through a captive has been explored, and it has been decided that a controlled operating subsidiary rather than a passive reinsuring entity will be the insuring vehicle; (2) captive will commence operations by insuring the life and accident and health benefit program of employees of the noninsurance parent and its other affiliates (possibly this source and the nature and characteristics of parent's business operations will be used to develop leads for insurance offerings to the general