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The Scoop on Rent-a-Captives (aka Segregated Cell Captives)

While there are a number of compelling reasons to establish or become a member in an “owner owned” captive insurance company, a rent-a-captive option should not be overlooked when exploring captives as a risk financing alternative. In fact, the rent-a-captive option (also known as segregated cell captives) can offer a number of advantages that owned programs do not.

In the past decade, the rent-a-captive concept is part of the mainstream of alternative risk-financing methods and can now stand shoulder-to-shoulder with any other captive structure. The main reason for this is the widespread use of segregated cell legislation in most captive domiciles, which allows the rent-a-captive facility to legally segregate the assets and liabilities of each insured using the facility.

Employers considering a captive for the first time should give serious consideration to the segregated cell option, and there are a number of good reasons for that:

– Capital needed to operate the cell will be roughly the same as required for a single-parent captive.

-Entry/Start-up costs are generally much lower when entering into a rent-a-captive vs. establishing your own captive facility.

-Ease of setup and exit are often touted as advantages of a rent-a-captive compared with an owned captive, and that’s certainly the case as far as setup is concerned.

-Some privately held companies have difficulty complying with a regulator’s request for confidential financial information when setting up a single-parent captive. As they won’t be a director of the cell or facility, the same disclosure requirements don’t apply to the users of the rent-a-captive facility.

Some questions to ask when considering a rent-a-captive:

-Who owns the facility, and how long have they been in business?

-Are financials available to review?

-Is there an advisory board my company can sit on to help make service provider decisions? (In an owned program, the employer has a seat on the board and a vote on who can and cannot service the captive)

-Review the participation agreement in detail

-How are the facility’s investments handled?

-How is investment income calculated? (Some structures will not share in investment income while others will)

-How are distributions handled?

-What is the tax status of the cell program?

Segregated cell rent-a-captive companies are now part of the mainstream when it comes to alternative risk financing mechanisms.  Contact Warren G. Bender Co. today to determine if a rent-a-captive facility is the right fit for your risk financing needs.

Filed under: Classic — Manager @ 12:36 am February 20, 2014