www.captiveinternational.com CASE STUDY 11
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same accounting positions may be
considered perfectly fine in the event
the company wins the very same case
in court. In other words, reputational
risk is in the eye of the beholder.
Moody’s and MAC may or may not
have engaged in improper accounting
practices with regard to the operation
of its captive insurance company. Those
issues will be ferreted out in court.
However, the concept of reputational
risk does constitute a valid insurable
interest for a captive insurance
company. Few third party commercial
carriers cover this risk, which is
precisely why reputational risk is
a great risk for a captive insurance
company. Moody’s, whose principal
value arises out of its reputation for
issuing non-biased credit ratings, is
an ideal candidate for such coverage.
The MAC lawsuit provides two lessons.
The first is that proper administration
of captive insurance companies
is absolutely necessary. There are
aggressive accounting positions
and then there are non-compliant
Captive managers should
understand whether their actions
comply with generally accepted
industry best practices or whether
they are out in a grey area.
Based on the allegations against
MAC, the lawsuit is not looking good.
Related party loans and asset-shifting
techniques to modify the income
to MAC are exactly the ‘form over
substance’ transactions generally
vilified by the IRS. They may very well
lose this case.
The second lesson, however, is that
MAC provides great value to Moody’s.
Had proper captive management
been in place then it is entirely likely
that MAC would continue to add value
to the Moody’s corporate family.
There are numerous uninsurable
risks perfect for captives: terrorism,
coastal property windstorm, or
outdoor cannabis crop insurance are
a handful of other coverages that
are very difficult to insure. These
exposures, like reputational risk,
can be mitigated through a properly
From Moody’s we see yet another
example of poor captive management
services creating a lawsuit.
Conservative captive management
techniques provide the best value to
the parent company in the long run.
Captive managers should review
accounting and business practices
that are routinely condemned by the
regulators and steer clear. Even if the
practice survives judicial scrutiny,
the costs of court likely outweigh the
Matthew Queen is general counsel
and chief compliance officer and
general counsel at Venture Captive
Management. He can be contacted at:
“Had proper captive
management been in place
then it is entirely likely
that MAC would continue
to add value to the Moody’s