Some British Virgin Islands captives draw IRS heat.(Spotlight)

Business Insurance, March, 2003 by McLeod, Douglas

Byline: DOUGLAS McLEOD TORTOLA, British Virgin Islands-The British Virgin Islands' captive industry continued to expand last year despite a potential threat to one of its primary sources of new business. The U.S. Internal Revenue Service announced last fall that it would scrutinize ``producer-owned reinsurance companies'' formed by car dealers, lenders and retailers to write warranty and other products under Section 501(c)(15) of the Internal Revenue Code.

Captives formed under Section 501(c)(15) have accounted for a large percentage of the new business generated in recent years in the British Virgin Islands, long an attractive domicile for small and midsize insurers. The tax code provision exempts qualifying insurers from U.S. tax on premium income and...

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