On August 21, 2017, the US Tax Court decided two companion cases, Avrahami v. Commissioner and Feedback Insurance Company v. Commissioner, involving various issues surrounding the formation and operation of a captive insurance company in Saint Kitts. Bruce Wright of Eversheds Sutherland reviews the federal analysis by the Tax Court. In the Avrahami case, the Tax Court looked at (1) premium calculations and amounts, (2) risk distribution from number of insureds, (3) exposure units, (4) risk distribution from terrorism pool, and (4) applicable coverages.

Mr. Wright also discussed what can be learned from the Avrahami case. In particular, a captive should do things that are normally done by insurers, such as (1) follow regulatory rules, (2) submit losses on a regular basis, (3) write policies with detailed terms and conditions, (4) allocate policy premiums, and (5) develop an actuarially derived premium calculation based on general actuarial principles.