In situations where the captive insurance lacks the scale to achieve significant risk diversification or lacks sufficient reserves to meet additional risks represented by the relatively less diversified portfolio of the MNE group, the accurate delineation of the actual transaction may indicate that the captive insurance is operating a business other than an insurance one (see guidance in Chapter VII).
TPG2020 Chapter X paragraph 10.208
Category: E. Captive insurance, E.2. Accurate delineation of captive insurance and reinsurance, OECD Transfer Pricing Guidelines (2017), TPG2020 Chapter X: Financial Transactions | Tag: Captive insurance, Financial transactions, Genuine insurance, Not a genuine contract
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- TPG2022 Chapter X paragraph 10.208In situations where the captive insurance lacks the scale to achieve significant risk diversification or lacks sufficient reserves to meet additional risks represented by the relatively less diversified portfolio of the MNE group, the accurate delineation of the actual transaction may indicate that...
- TPG2022 Chapter X paragraph 10.215In accurately delineating fronting arrangements, the same principles stated for captive insurance apply. It is important to note, however, that fronting arrangements represent particularly complex controlled transactions to price as they involve the participation of a third party that is indifferent to the...
- TPG2022 Chapter X paragraph 10.200In order to consider the transfer pricing implications of a transaction with a captive insurance, it is first necessary to identify the commercial or financial relations between the associated enterprises and the conditions and economically relevant circumstances attaching to those relations in order...
- 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...
- TPG2022 Chapter X paragraph 10.206Alternatively, risk diversification may be achieved by covering internal risks when the breadth and depth of the MNE group allows the captive insurance to cover non-correlated or less than fully correlated risks and varied geographical exposures. Situations where a captive insurance only covers...
- TPG2022 Chapter X paragraph 10.204Risk diversification is at the core of insurance business. Combining non-correlated risk and varied geographical exposures lead to an efficient use of capital, allowing the insurer to have a lower level of capital than that the insured parties would have been required to...