A rental captive is a captive insurance company that can be used or “rented” by unrelated insured. It allows insured to gain the benefits of a captive insurance arrangement without actually participating in the captive insurance company’s ownership or management. Rental captives can be structured to allow risk sharing among the participants or with no risk sharing at all. Where there is no risk sharing, participation in a rental captive facility can be similar to purchasing insurance from a commercial insurer. The sponsor contributes the captive’s statutory capital. Generally, the sponsors that own a rental captive do not take on much risk. They are only charging a fee for the use of their capital and for organizing and operating the captive.
Pros of rent a captive
Depending on certain circumstances, rental captives can offer a number of advantages:
- Reduced administrative costs as compared to owned captives
- No commitment of funds for capitalization
- Programs that are loss sensitive
- Claim reserves kept off balance sheet
- Avoidance of captive-related legal problems
- Less restrictive exit provisions
- Underwriting profit and investment income
Two categories of captive insurers
There are two main categories of captive insurers
- One is Pure captives that are captive insurers that are 100 percent owned, directly or indirectly, by their insured.
- The other one is Sponsored captives that are captives owned and controlled by parties unrelated to the insured.
Why rent a captive is very important for a business?
Often times, a rent-a-captive is the first step towards the formation of a single parent, group or association captive as these can be formed over a period of time while the owners are developing the captive’s business through a rent-a-captive arrangement but without expending the same costs involved in setting up these other types of captives.
Rent a captive is so important because forming a captive is a major undertaking – both financially and logistically (even with the significant benefits it provides) – and finding competent staff to manage the intricacies of a captive can be time-consuming and expensive, a rent-a-captive is a good solution. It’s the case of why own, when you can rent. Rent-a-captive programs are also there which can help you understand how things can work for you and how you can utilize things for good. When you see a risk from any of the factors that are there in your business you immediately try to eliminate it and that is when you will be needing rent a captive.
Companies and businesses especially need to look forward to rent a captive so that they can easily avoid or dodge risks and can also make sure that if there is any such risk then how to handle it or share with other companies at the same level. So, it can be difficult for you to figure when to go for rent a captive but less than facing risks that can bring loss to your business.