CAPTIVE INSURANCE REVIEW

Summary of the Case: 

Esoteric Advisors was engaged at the last minute by a CPA for a full-scope review of two Captive Insurance plans. These were Closely Held Insurance Companies (CHICs) set up by an advisor for a business customer as a self-insured plan, which was primarily being used as a tax shelter. 

We quickly determined that the company sponsoring these plans was not an outright scam. 

However, it was evident that these plans were a means for the advisor to establish CHIC entities and then sell very expensive whole life policies to the owner of the company. Esoteric Advisors concluded that these plans would likely not comply with captive insurance rules (831b). 

We strongly advised the client against engaging in this plan. Additionally, through BrokerCheck, we discovered that the advisor involved had a long history of significant regulatory sanctions. The CPA agreed with our assessment.

Disposition: 

Despite our recommendations, the client decided to proceed with the plan. Consequently, the CPA withdrew from his professional relationship with the client.