This enables the Canadian captives to pay tax only in Ireland when dividends are repatriated. That means no further taxes are payable in the hands of the parent. Catastrophe reserving can be created from the enhanced cash flow through open fund accounting. This allows tax on the technical profits earned to be deferred for five years. The company benefits when the account for the first year is closed in the sixth.
Additional advantages depend on the parent company's motivation.
A few notable nontax and tax-based reasons stem from the unavailability of coverage, lower insurance costs, risk diversification, capital management and the most obvious tax advantages. Certain types of esoteric liability coverages may not be conveniently available in Canada. Canadian laws also may prevent certain types of liability coverages from being offered domestically. Insurers also may lack adequate data to price the products correctly. When the marketplace cannot provide coverage, a captive can be formed to cover these liabilities.