The Latitude Plan: Frequently Asked Questions About Private Reinsurance

The Latitude Plan is a structure for establishing a privately owned reinsurance company that works alongside your commercial coverage. It is designed for U.S. businesses with $1M to $1B in annual revenue. Below are the questions we hear most, answered as plainly as we can.

What it is

What is private reinsurance?

Your operating company buys insurance policies for its uninsured and underinsured risks from a licensed third-party carrier. That carrier then cedes premium and risk, under a reinsurance treaty, to a reinsurance company you own. Net of claims, the underwriting profit stays in the reinsurance company the owner controls instead of staying with an outside carrier.

Is The Latitude Plan a micro-captive?

No. Reinsurance companies under The Latitude Plan operate under the 831(a) designation. The structure does not use the 831(b) micro-captive election that has drawn IRS scrutiny, and it is deliberately built without the elements that draw that scrutiny. Every policy is priced against a formal actuarial assessment of real, identifiable business risk. Premiums are never sized to a target deduction.

Is this a new idea?

No. Insurers have shared risk with reinsurers for centuries, going back to the merchants who met at Lloyd's coffeehouse in London. Large companies have used private structures for decades: 92% of Fortune 500 companies use a form of private reinsurance (Marsh Captive Landscape Report). The Latitude Plan brings a comparable structure to closely held businesses.

Does this replace my commercial insurance?

No. Your commercial policies stay in place with your existing carriers. The Latitude Plan is designed to cover uninsured and underinsured risks that fall outside those policies. Catastrophic risk generally belongs with large commercial carriers.

Fit

Does my business qualify?

Typical fit is $1M to $1B in annual revenue, consistent profitability, and meaningful retained risk that commercial coverage may not address. Owners in construction, manufacturing, medical and dental practice, legal practice, agriculture, oil and gas, auto retail, hospitality, and retail are common candidates. See Industries for specifics.

Which businesses are a harder fit?

Publicly traded companies, businesses with employee stock ownership plans, and companies whose investor agreements are built around EBITDA tend to be more complicated fits. We will tell you early if we think the structure does not suit your situation.

What risks can be covered?

Coverage is built around your business, based on the actuarial assessment. Common lines include business interruption, loss of a key employee or key customer, cyber liability, legal expense, regulatory change, reputational risk, and supply chain interruption. Our article on the risks private reinsurance commonly covers lists forty of them.

The actuarial assessment

What is the actuarial assessment, and why is it required?

An independent licensed third-party actuary reviews your financials, operations, and existing commercial coverage, identifies your uninsured and underinsured risks, and recommends premiums to the carrier. The carrier underwrites and prices each policy. The assessment is what ties every premium to a real risk.

What do I need to prepare?

Typically your most recent balance sheet, your profit and loss statement, and the declaration pages of your existing commercial policies. We help you prepare for the interview with the actuary.

Premiums and tax treatment

How much premium will my business pay?

That depends entirely on the assessment. Premiums are priced to the risks the actuary identifies. There is no standard figure, and anyone who quotes you a premium before an assessment is working backward.

How are premiums treated for tax purposes?

Premiums are paid from your operating business and are generally deductible as ordinary business expenses. Confirm treatment with your tax advisor. We encourage every owner to bring a CPA or tax attorney to the presentation.

What happens to premium after it is paid?

After a 30-day risk transfer window, the carrier cedes 85% of the remitted premium to your reinsurance company under the reinsurance treaty. Those reserves are held to pay claims. They can be invested, and loans can be written from reserves under documented terms. The How It Works page walks through the flow.

Structure and oversight

Who owns the reinsurance company?

You do. The owner owns the reinsurance company, which is formed as a C corporation, and designates its officers. You are the signer on its bank account.

Why a sovereign tribal domicile?

The Latitude Plan's reinsurance companies are chartered and licensed by the Modoc Nation of Oklahoma. Sovereign tribal jurisdictions are domestic and onshore but sit outside state insurance-department registries. The result can be favorable premium-tax treatment relative to state regimes, no public filing of your structure, and a recognized direct-procurement framework. There are no offshore accounts.

How does the IRS view this?

The structure is built to map to statute, Treasury regulation, and case law that has stood for decades, including the four-part test federal courts use to decide whether an arrangement is insurance. The reinsurance company is taxed under 831(a) and files a full federal return each year. Structure and Oversight lists the authorities, and the Compliance and the IRS FAQ covers audit questions.

Who does what?

Reinsurance Specialties is a consulting firm. An independent licensed actuary assesses risk. A licensed third-party carrier underwrites, issues the policies, and administers claims. The sovereign domicile charters and licenses your company. An administrator prepares cession statements, financial reports, and tax returns. We guide you through each step and stay on as your consultants.

Claims

What happens when there is a loss?

You decide if and when a covered loss is submitted. The third-party carrier reviews and administers each claim. Approved claims are paid from your reinsurance company's reserves.

Getting started

What are the steps?

There are five: the actuarial assessment, formation of your reinsurance company, policy issuance, ceding under the reinsurance treaty, and ongoing claims and administration.

How long does setup take?

From the introductory call to first policy issued, most engagements complete in four to six weeks. There are no long-term contracts.

What does it cost to get started?

The one-time capitalization cost is $14,990. It covers the application, formation of your reinsurance company by the tribal nation, the actuarial assessment, and policy issuance. From year two, the annual renewal cost is $6,950, which covers domicile renewal and the federal tax filing for your reinsurance company.

What is the ceding fee, and what does it cover?

The Latitude Plan has a flat 15% ceding fee on premium. It covers the ongoing services the structure needs: cession statements, financial reporting, tax return preparation and filing by the administrator, claims support, and consultation. See the Fees and Process FAQ for more.

See it in one hour

Book a one-hour presentation of The Latitude Plan. Your CPA or attorney is welcome on the line.

This article is for educational purposes only and is not legal, tax, or financial advice.