A turning point for captives?

Captive International looks at how the One Big Beautiful Bill Act could affect the captive insurance landscape.

The One Big Beautiful Bill Act (OBBBA), signed into law by President Donald Trump on July 4, 2025, has proven to be one of the most carefully read legislative packages of the past decade. With provisions touching on everything from taxation to healthcare and regulatory policy, its implications stretch far beyond its initial headlines.

Though the OBBBA does not explicitly target the captive insurance industry, experts warn that its ripple effects – especially in taxation and healthcare – will increasingly influence captive strategy, structure and operations in both US and international markets.

As Anna N.W. Regnier, shareholder at leading law firm Maynard Nexsen, aptly puts it: “At first glance, there is little in the bill that immediately and directly impacts the US captive insurance industry; however, the broad reach of the OBBBA’s tax and healthcare implications could have downstream consequences on the captive industry.”

This article explores those downstream consequences, drawing on expert commentary and current legislative analysis to provide a detailed picture of how captives – both large and small – must adapt to an evolving environment shaped by the OBBBA.

Permanent tax reform: a mixed blessing for captives

The most immediate and impactful change for captives arises from the permanent extension of the 2017 Tax Cuts and Jobs Act (TCJA) provisions, most notably the corporate tax rate, which now remains fixed at 21%, down from the pre-2017 rate of 35%.

“This will allow captives subject to US tax to continue to benefit from the lower rate,” says Regnier. For traditional captive insurers, the reduced rate translates into long-term certainty on taxable underwriting and investment income – thus aiding in financial forecasting and tax planning.

However, this advantage does not come without complications. As Nate Reznicek, president and principal consultant at Captives.Insure, points out: “For micro-captives electing 831(b) treatment, the permanent lower tax rates reduce the value of premium deductions while simultaneously decreasing the tax on investment income.” In other words, the financial levers that once gave captives a strong edge in tax arbitrage are now far less powerful, prompting a shift in focus.

Indeed, Reznicek highlights that this dual effect is “encouraging captive owners to focus more on legitimate risk management benefits rather than purely tax-driven motivations.” This is a trend that regulators, particularly the IRS, have long called for – seeking to discourage captives that operate more as tax shelters than as bona-fide risk management tools.

New IRS realities: heightened scrutiny amid reduced capacity

In a striking paradox, the OBBBA cuts IRS staffing by more than 25% and funding by 37%, even as it introduces tougher rules around micro-captive arrangements. While the budget cuts might suggest a reduced likelihood of enforcement in the short term, the regulatory bar has been raised significantly.

“The agency has simultaneously finalised stringent regulations on micro-captive transactions effective January 14, 2025,” notes Reznicek. These regulations classify certain arrangements as “listed transactions” or “transactions of interest” and bring with them enhanced reporting requirements and steep penalties.

Targeted are captives with loss ratios below 60% over a ten-year period and those engaged in inter-company financing. These developments mark a new era for small business captives, many of which now face greater compliance burdens just as their potential tax incentives wane.

Captive managers will need to be more meticulous than ever. Reznicek summarises the new dynamic succinctly: “Successful navigation of this new environment demands greater emphasis on legitimate risk management purposes, enhanced compliance systems and careful attention to international tax and regulatory developments.”

International captives and the tariff squeeze

The OBBBA also introduces a range of tariff measures that have implications for international captives. According to projections from Swiss Re, these policies could slow global GDP growth to 2.3% in 2025 – down from 5.2% in the previous year – and reduce global insurance premium growth to just 2%.

These economic pressures present multi-layered risks to captive structures abroad:

• Higher replacement costs for imported goods lead to increased claims exposure.
• Market volatility affects captive investment portfolios, particularly those tied to equity markets or foreign assets.
• Supply chain disruption creates more complex underwriting scenarios and calls for broader coverage types.

Perhaps most importantly, tariffs complicate transfer pricing arrangements, exposing international captives – especially those based in domiciles such as Bermuda or the Cayman Islands – to double taxation risks and increased regulatory scrutiny.

As Reznicek warns, “Captives must carefully structure their international operations to avoid scrutiny from tax authorities in multiple jurisdictions.” With regulators on alert for abuse of cross-border arrangements, even legitimate structures must prepare for higher documentation and transparency expectations.

Healthcare provisions: new terrain for benefit captives

Beyond taxation, one of the OBBBA’s most profound impacts lies in the healthcare arena, where it has triggered a wave of regulatory change that directly touches medical stop-loss captives and employer-sponsored benefit programmes.

Among the most significant reforms is the expansion of Health Savings Account (HSA) eligibility beginning in 2026. As Reznicek explains, the OBBBA “allows HSAs to be paired with more health plan types beyond high-deductible plans,” which opens the door to broader adoption.

The legislation also raises HSA contribution limits to $4,400 for individuals and $8,550 for families, building larger tax-advantaged pools of healthcare capital – resources that captive programmes can be designed to support and enhance.

These changes create fertile ground for innovation, particularly in areas such as:

• Telehealth integration
• Direct primary care coverage
• Custom employee benefit captives for multinational employers

However, they arrive alongside significant headwinds. The OBBBA reduces federal Medicaid funding by $1 trillion over ten years, a move that the Congressional Budget Office estimates will result in more than 11 million people losing health insurance.

Regnier points to the long-term consequences: “These changes could increase the demand for self-funded options such as captives, as well as potentially influence risk management strategies for businesses that use them.”

Cost shifts and hospital fallout

The knock-on effects of Medicaid reductions are already being felt across the healthcare ecosystem. Reznicek observes: “These cuts are projected to force hospital closures and consolidation, particularly affecting rural and safety-net facilities.”

In financial terms, private insurers and employers might bear the brunt of the cost shift, with estimates suggesting an increase of up to $2,000 per individual in private insurance premiums. Captives, especially those covering healthcare liabilities or underwriting stop-loss insurance, might face higher claim volatility and increased systemic exposure.

In this environment, precision risk management becomes not just a benefit – but a necessity.

Self-funded plans and the ERISA advantage

The OBBBA also reinforces federal pre-emption under the Employee Retirement Income Security Act (ERISA), which could have major implications for self-funded health plans supported by captives.

According to Phillip C. Giles, chief growth officer at Skyward Specialty Insurance: “The bill could reinforce ERISA’s federal pre-emption of state laws to prevent states from imposing additional mandates or restrictions on self-funded employer plans.” In practical terms, this means reduced state oversight and a more centralised regulatory structure, giving employers greater flexibility to design cost-efficient and customised benefit plans.

Giles sees this as a potential boon for captives: “The Bill creates strategic opportunities for self-funded plans and medical stop-loss captives to take greater control of their healthcare spend.”

Yet, this newfound control comes with its own challenges. The OBBBA expands pricing transparency requirements, building on existing mandates that hospitals and insurers publish negotiated rates. Captives will now have access to richer datasets – but interpreting and utilising that information remains a tall order.

“Transparency doesn’t always mean clarity,” Giles cautions. “Many employers lack the tools to interpret and act on pricing data without appropriate analytics support.”

Data-driven captives: the path forward

To unlock the full potential of transparency mandates, captives must evolve into data-driven organisations. The ability to conduct cost benchmarking, implement reference-based pricing, and re-price provider contracts will separate high-performing captives from the rest.

However, success depends on having the right infrastructure – analytics platforms, actuaries, consultants and medical network expertise. Without these components, employers might find themselves overwhelmed by the very data intended to empower them.

Giles summarises the opportunity: “Success will depend on adopting proactive plan design, risk management discipline and leveraging transparency tools to drive cost efficiency across the entire benefits ecosystem.”

Regulatory consolidation on the horizon

Though the OBBBA does not mandate immediate federal consolidation, it does reflect a broader regulatory trend toward unified oversight. States such as North Dakota have already merged insurance and securities departments, and 16 other states have taken similar steps.

Reznicek notes that this might lead to “reduced regulatory fragmentation, enhanced coordination in financial crime investigations, and simplified licensing processes for captive professionals”.

At the federal level, discussions around merging agencies such as the FDIC, OCC, and CFPB could signal future reforms that impact captives – particularly those engaged in multi-jurisdictional operations.

Strategic takeaways for captive owners

The OBBBA represents more than a legislative update; it marks a strategic inflection point for the captive insurance industry. As Reznicek concludes: “The One Big Beautiful Bill Act creates a fundamentally transformed landscape for captive insurance operations.”

To thrive, captive owners and managers must:

• Shift focus from tax arbitrage to legitimate risk management
• Enhance compliance and regulatory reporting structures
• Strengthen international arrangements against scrutiny
• Leverage new healthcare and data transparency rules
• Prepare for regulatory consolidation and federal oversight

Conclusion: navigating the new normal

The full effects of the One Big Beautiful Bill Act will not be felt overnight. As Regnier notes, “The full impact of the bill may not be realised for some years.” Yet the signs are already visible: captives must adapt or risk obsolescence.

In a post-OBBBA world, the most resilient and successful captives will be those that embrace change, invest in data, align with regulator expectations, and deliver tangible value to their parent organisations.

The bill might have been branded as “beautiful”, but for captives, its impact is far more complex – equal parts challenge and opportunity.

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