Originally published in The Broker, summer 2008
Utilising rent-a-captives can deliver considerable savings over conventional insurance programmes as well as having many other benefits for small and medium sized companies says Peter Niven, Chief Executive of GuernseyFinance
Imagine the happy faces when your clients see their cost savings associated with retaining the unclaimed premium in their insurance programme.
Aside from this key benefit SME clients may utilise a rent-a-captive to:
- Avoid paying large overheads and profit margins
- Insure unusual or catastrophic risks or multiple small
- Have direct access to the wholesale reinsurance
- Benefit from the investment return on retained
- Take advantage of taxation efficiencies – the
payment of insurance premium is deductible in arriving at
profits and receipt is at the group's offshore
- Access lower insurance premiums as these relate to the
insured's previous claims record
- Improve their risk management and understanding of the
cost of risk
But aren't the start-up and on-going costs prohibitive?
No. In rent-a-captives these costs are shared which makes them economically viable for small to medium sized businesses.
Will sharing a captive insurance company expose clients' assets to the risks of other members?
Again, no. Rent a captives can be so effective for SME's as they utilise cell structures such as the Protected Cell Company (PCC) – a company made up of a core and individual cells, where the legal segregation ensures that no claim against one cell will be covered by the funds furnished by another.
So, rent-a-captives really are viable for SMEs?
Yes, and in addition the use of a third-party cell company rather than a full-blown captive has distinct benefits for SME's:
- Lower operating costs –
Savings from reduced reporting requirements and shared
- Less management time –
Reduction in the amount of executive time required by the
cell owner, primarily because attendance is not required at
quarterly PCC Board meetings
- Quicker and cheaper to set up and exit
– Setting up and closing down a PCC cell does not
require the same legal processes required to incorporate or
wind up a company
- No minimum capital – There is
a need to cover the minimum margin of solvency and the risk
gap but this may be less than the £100,000 minimum
required for a separate captive
- Less tax – Using a PCC can
avoid being subject to Controlled Foreign Company
Interested in hearing more?
Please get in touch or contact one of the many service providers on the Island who are leaders in the captive insurance field. They can be viewed through the business directory.
Guernsey is the leading Captive insurance domicile in Europe and is in the top five jurisdictions in the world. The Island introduced PCC legislation to the world in 1997 and has since introduced an alternative in the Incorporated Cell Company. There is no better home for your clients' business.
For more information about Guernsey's finance industry please visit www.guernseyfinance.com.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.