NERA Associate Director Amanda Pletz and Daniel F. Gibson of Oliver Wyman Actuarial (both part of the Oliver Wyman Group) provide comments on Section E (related to Captive Insurance) of the Discussion Draft on financial transactions released by the OECD on 3 July 2018 in the context of BEPS Actions 8–10.

In their response document, the authors suggest more work is needed to understand the interactions between group companies and every element of the captive insurance value chain. A more holistic approach will also help to identify certain relational aspects that would influence arm’s length pricing of a captive insurance company. The authors further assess the risk framework described in the OECD Guidelines, highlighting approaches that can be relied upon to assess whether a captive insurance company carries insurance risk.

Regarding transfer pricing methods, the authors believe the pricing of transactions in relation to captives would benefit from an approach that reflects industry information and long-term averages. They believe that comparability should be considered in line with what has already been described in Chapter 1 of the OECD Guidelines.