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The Alternative Insurance Market
ReRide Consulting Inc. works with segregated cell captive companies that are formed for the purpose of a hard market in the commercial insurance industry. The commercial insurance industry is affected by worldwide exposures which is typical of the commercial market place (i.e., higher premiums, claims management, etc.). By virtue of this, the commercial market in turn demands higher premiums from the companies when it is not a true reflection of their historical loss exposure data.

At ReRide Consulting, we utilize professionals to do a comprehensive evaluation of your insurance needs and concerns. They use this information to analyze the risk solutions that would benefit your company such as dividend income on loss reserves, risk management, and better claims control. ReRide Consulting understands that the bringing together of professionals and consultants to analyze your information may not be typical of the commercial insurance market. ReRide Consulting will provide recommendations based on the facts that we request you bring to us, to determine whether or not you meet the criteria established by ReRide Consulting to qualify for our alternative program.

What is a Rent-A-Captive?

A Rent-A-Captive program is a single-parent captive company that can rent its license and capacity to other program participants for a management fee. It is used in instances where it is either more timely or cost effective to rent existing captive than creating your own.

Rent-A-Captive programs can be direct-writers, or reinsurers in all lines other than Worker's Compensation and Auto liability where an “admitted” carrier is required. In these cases, a “fronting” carrier is utilized to write the risk and then reinsure with the Rent-A-Captive.

The use of Captives usually results in a greater focus on loss control and claims management. This focus will eventually lead to a long-term reduction in insurance premiums and overhead costs as compared to the commercial market place. Utilizing a Rent-A-Captive allows companies to reduce their net costs through the receipt of underwriting profits and investment in some from their own insurance program. Insured using this method to finance and manage their risks are not penalized by the commercial market place for losses world-wide, thus causing insurance premiums to constantly decrease or be lower than that found elsewhere on a standard basis.

Benefits of a Rent-A-Captive

Joining an existing Rent-A-Captive provides the ability to network with existing members and get firsthand experiences on the structure, vendors, and working relationships of the particular Captive. It also reduces the administrative costs associated with lawyers, auditors, and investment managers. Many corporations also find the off-balance sheet accounting to be attractive with the Rent-A-Captive which, if structured correctly, has a true transfer of risk and thus, claims liabilities, unlike an Equity Captive that is usually a subsidiary of the parent company. There can be various tax efficiencies with different Rent-A-Captives and equity structures to consider driven by risk sharing, shifting, and distribution. Third party tax advice is always prudent in any Rent-A-Captive structure under consideration.

Often an insured will choose a Rent-A-Captive structure to test the usefulness of this type of program and the financial benefits. Implementation is much quicker with a Rent-A-Captive than setting up a new Captive because you do not need to perform a feasibility study or a business plan for the regulators in the domicile of choice and the commencement of using an established Rent-A-Captive facility is immediate. A Rent-A-Captive provides one-stop shopping for the program participant as fronting relationships are already in place and key decisions already researched. The less restrictive exit strategy, as compared to owning a Captive or belonging to a group structure, is an attractive benefit to the cautious buyer, who wants to have a defined exit strategy.

Financial Benefits of a Rent-A-Captive

Rent-A-Captives can be used as part of an overall risk management approach to help reduce the cost of insurance programs. Reduction is accomplished by reducing or avoiding commercial insurer's administrative overhead cost and returning underwriting profits and investment income back to the insured or related party. The overhead cost and underwriting profits are generally returned to the commercial market place. Other potential areas of savings can be obtained by the access to the lower cost reinsurance markets by the Rent-A-Captive.

A Rent-A-Captive Program allows the participant company to earn investment income on unpaid loss reserves. This generally represents 50% of the profit generated by insurance companies. A Program owner can benefit from their own individual loss experience rather than pay premiums based on industry-wide losses or perceptions.

Using a Rent-A-Captive also allows the program participants to access the lower cost reinsurance market. The reinsurance markets are only available to the commercial market and captive insurance companies like ReRide Consulting. Accessing the reinsurance markets directly allows participants to eliminate the commissions that are typical of the commercial markets. This could reduce the cost to the Rent-A-Captive and increase possible dividend returns back to the parent company.

The Insurance Benefits of a Rent-A-Captive

Rent-A-Captive programs help provide a greater degree of flexibility and control over the risk management function. This is done by allowing programs to be designed in responses to specific coverages, premiums, and retentions. These programs are designed to offer individual operating units of a company, the coverages and deductibles it requires. This can be done while maintaining the overall control and design of the insurance program at the corporate level. A Rent-A-Captive program helps centralize the financial and administrative operation of the corporate insurance program.

The main reason ReRide Consulting was established was to stabilize the escalating premiums in the commercial marketplace. Also, to obtain coverages that is either expensive to obtain or that are no longer available in the commercial market. In addition to providing support services, the Rent-A-Captive has access to the reinsurance markets.

A Rent-A-Captive can be used as a means to fund the specific exposures a company wants to insure (Worker's Compensation, General Liability, and Auto). As a Rent-A-Captive matures and, through solid risk management techniques, its surplus will increase. As a result, it will develop a greater capacity to retain risk, thus allowing for the option of a reduction in the amount of reinsurance purchase.

What is a Segregated Cell Company?

The first domicile to enact Segregated Cell legislation was Guernsey, passing the Protected Cell Companies Ordinance in 1997. Soon to follow were the Cayman Islands, Bermuda, and several other offshore captive domiciles. Onshore, many states have joined the movement and enacted Segregated Cell legislation.

As the name implies, under a Segregated Cell structure, each participant's program is separated (fire-wall) from other program participants. The funds may be held in the same Rent-A-Captive facility, but are not attachable to any other cell. This type of Rent-A-Captive registers with its respective governing body to operate cells that are statutorily separate from other cells. In other words, within the Rent-A-Captive, the cells have the benefit of being incorporated without actually having to do so (a company within a company). Each cell has its assets legally segregated from every other cell and is protected from the losses of any other cell as well as any legal action from another cell participant.

The major advantage to a Segregated Cell company is that each participant's funds are legally separated, rather than being separated as a matter of accounting purposes, like a mutual fund. The participants can access the same Rent-A-Captive facility as others and avoid sharing risk with other participants without having to create a separate captive to do so.

Disadvantages of a Rent-A-Captive

While there are many advantages to establishing a Rent-A-Captive, there could be some disadvantages. Some capitalization is required to fund the Rent-A-Captive, often to maximum liability in each of the first two years and should any large claims arise, an infusion of capital might be needed to remain or prolong the funding needed. Rent-A-Captives mitigate capital outlays, but typically require long-term participation to make them worth the while.

Depending on the Captive insurance company's requirements, the quality and dependability of its third-party service providers are very important to the Rent-A-Captive cell owners. That is why ReRide Consulting has a team of top professionals in their fields to assist our customer's needs and concerns.

Taxation is always very important when establishing a Rent-A-Captive. Depending on the state and domicile of your company will reflect any type of tax savings. ReRide Consulting recommends that you consult with your tax advisors and lawyers before establishing a Rent-A-Captive structure.

By assuming a large net retention it is possible in a given year that the ultimate cost of insurance would be greater than if purchased in the general marketplace.

Expensive fronting and other risk transfer costs can have a negative impact on the breakeven or profitability of a Captive program.

What Types of Companies Would Fit in a Rent-A-Captive?

Rent-A-Captives can benefit individual corporate accounts currently paying $1,200,000 annually in casualty premiums. The Rent-A-Captive may serve as a reinsurer of the policy-issuing carrier or issue policies directly to the insured. The fronted structure can be a guarantee cost or a retrospective rating plan. It is possible to combine together smaller risks into a group program where their premium falls under this threshold.

Some additional structures for a corporate Rent-A-Captive program include: Large Deductible plans coupled with a Deductible Reimbursement Policy.

The insurance company issues a policy in which the insured takes a sizeable deductible and the Rent-A-Captive issues a policy directly to the insured for the deductible layer. The insured then funds the deductible layer with a combination of premium and collateral.

Companies that would like greater flexibility with their insurance programs. The ability to design a program in response to their specific needs, and not pay the higher premiums that are typical in the commercial market place based on exposures worldwide. By owning a Rent-A-Captive a company could see a reduction in insurance premiums by capturing underwriting profits and investment income on its individual losses and risk management programs.

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