The increase was released by the Internal Revenue Service as part of its 2018 tax year inflation adjustments.
The adjustment is a result of the provisions put in place as part of the Protecting Americans from Tax Hikes (PATH) Act of 2015, which amended section 831(b) of the US tax code.
Section 831(b) of the Internal Revenue Code allows small property and casualty captive insurance companies to make a tax election meaning the premium they take in is not taxed as income.
The amendments in the PATH Act, which became effective 1 January 2017, increased the maximum allowable premium an insurer can take in and still qualify for the tax election from $1.2 million to $2.2 million with inflation adjustment provisions for future years.
Whilst significantly smaller than the $1 million rise in 2017, the limit increase should add value to those captives near the current premium limit and open the door for other companies to explore the benefits a captive insurance company can provide.