Written by: Jim Smith
Small and mid-size companies seeking an alternative method of risk transfer but lacking the financial capacity to form their own captive and unwilling to pool their premiums and losses with others in a group captive might consider a third option – “rent a captive”. This increasingly popular vehicle allows firms to realize the benefits of a captive insurance arrangement without participating in the ownership or management of the facility. It has become the ideal first step for those entering the alternative market.
Unrelated insureds can access a rent-a-captive with much lower entry and operating costs and shorter set-up time in either domestic or offshore domiciles. A further refinement of the rent-a-captive is the protected cell company (PCC), which provides legal separation of the assets and liabilities of each insured’s account, or “cell”, from those of every other insured. Each cell is shielded from sharing capital or surplus with other cells and from legal action against another cell. A PCC, similar to a corporation, protects the business owners’ personal assets from claims arising from their business operations.