Transfer Pricing Tool
for Insurance

Transfer Pricing for Insurance: OECD Methodology

Transfer pricing for insurance groups involves unique considerations driven by the industry's regulatory environment, risk-based business model, and the complexity of insurance contract valuation under IFRS 17. The most common intercompany transactions in insurance groups are reinsurance cessions (transfer of insurance risk between related entities), management and administration services, and captive insurance premiums. The OECD Transfer Pricing Guidelines apply to all of these, but the specific methodology depends on the nature of the transaction and the availability of comparable data.

For intercompany reinsurance transactions, the CUP method is preferred where market reinsurance rates are observable. The reinsurance market — particularly the London market, Bermuda, and Singapore — provides pricing benchmarks for standard risk classes. However, comparability requires careful matching of risk profiles, coverage terms, attachment points, and loss experience. For non-standard or complex reinsurance structures (e.g., aggregate excess-of-loss, catastrophe bonds), comparable data may not be readily available, and alternative methods such as the actuarial approach (pricing based on expected losses plus risk margins) may be needed alongside or instead of traditional TP methods.

Captive insurance arrangements face particular transfer pricing scrutiny. Tax authorities question whether the captive insures genuine risk, whether the premium charged is arm's length, and whether the captive would be viable as an independent insurance company. OECD Guidelines discuss captive insurance in Chapter X (¶10.203–10.226). The key tests are: (1) does the captive insure third-party risk to a sufficient degree to constitute genuine insurance? (2) is the premium comparable to what an independent insurer would charge for equivalent coverage? (3) does the captive have adequate capital and governance to operate independently? Management services between insurance group entities — claims handling, actuarial support, IT infrastructure, regulatory compliance — are typically benchmarked using Cost Plus or TNMM.

Recommended Method: CUP (Comparable Uncontrolled Price)

For insurance entities, the cup (comparable uncontrolled price) is typically the most appropriate transfer pricing method. This tool pre-selects this method based on industry best practice and OECD guidance. Typical arm's length ranges for insurance are 5–15%.

Typical Insurance Intercompany Transactions

Intercompany reinsurance — Ceding of risk from a primary insurer to a related-party reinsurer. CUP may apply where market reinsurance rates and terms are observable for similar risk classes. Preferred method: CUP (Comparable Uncontrolled Price).

Management and administration services — Centralised services (claims processing, IT, compliance, actuarial) provided between group entities. Cost Plus is standard for routine services. Preferred method: Cost Plus Method.

Captive insurance premiums — Group entities insure risks with a captive insurance subsidiary. Pricing must reflect arm's length premium rates for comparable coverage from independent insurers. Preferred method: CUP (Comparable Uncontrolled Price).

Regulatory Context

Insurance TP intersects with Solvency II (EU), NAIC (US), and local insurance regulation. Captive insurance is under particular scrutiny in the EU, UK, and Australia. OECD Chapter X (2020) provides specific guidance on captive insurance transfer pricing.

Limitation: For complex reinsurance structures or profit split between insurance and reinsurance entities, consult a specialist. This tool handles CUP for premium benchmarking and Cost Plus/TNMM for services.