RENTALIS INSURANCE COMPANY, INC.
Rentalis Insurance Company, Inc. is a protected cell captive insurance company. As a licensed and regulated insurer, we must maintain much of the structural requirements, including capital, surplus, reporting, and management, as any other insurer; however, we only insure the risk of our members, which we refer to as participants. We transfer or syndicate much of our bond risk to AM Best A or Better rated companies who specialize in reinsuring commercial and contract surety. The benefit of the protected cell captive structure is that the business is legally segregated and protected from any other risk.
OPPORTUNITY IN THE MARKET
Rentalis Insurance Company, Inc. was formed to address underserved areas of the surety sector. Following the last recession, many changes occurred in the way bonds were underwritten and the amount of capacity offered. Many insureds found themselves paying higher premium rates, and in some cases losing their support. Many surety products were discontinued. This has created an opportunity where the flexibility, lower operational cost, and direct access to international reinsurance markets can deliver greater value to participants in the captive insurance company. Responding to an evolving market can be done so much more efficiently.
RENTALIS CAPTIVE STRUCTURE
Captives are established as an alternative form of risk management where the objective is insuring the risk of its parent company or group, customers, members, or association. This structure is becoming a more practical and popular means through which companies can protect themselves financially while having more control over how they are insured and benefiting from underwriting profits and special tax treatment.
It is hard to identify a major corporation that does not have at least one captive insurance company. Some corporations have multiple captives that serve different roles. For instance, a corporation may have one captive that primarily covers the corporation's general liability, environmental liability, and product liability and then another that insures employee benefits such as workers compensation and healthcare.
Captive insurance is regulated differently than standard insurance structures. The key purpose of insurance regulation is to protect policyholders first and foremost, as well as investors and other stakeholders. A captive is different from a commercial insurance company because it just serves its parent company. Therefore, captives are regulated differently than traditional insurance companies that serve the public. Like traditional insurance companies, captives are regulated by the state in which its headquarters are located. Regulatory efforts to oversee standard commercial insurers who do business with the general public on an arms-length basis are similar to captive regulation, however, the regulation of captives assumes insureds are sophisticated and more leeway is given to rate and policy methodologies which may be quickly altered to meet the changing business objectives of its participants.
Captive insurance allows insureds to better predict pricing and pass on the savings realized by engaging directly with international reinsurance markets to its participants. Coverages not available in the standard market can be provided through the captive insurance company and the flexibility of rate and policy design allows creative products to satisfy new risk transfer needs of the modern economy.
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A Sponsored Captive is created by a legal entity that does not have to be an insured of the captive. The insureds whose risks are underwritten by the captive are called participants. The insureds are required to pay an access fee but do not have to pay in capital in return for ownership. This captive can also be structured to have separate underwriting cells as a means of limiting exposure from different risk classes. IRS guidance on the treatment of these arrangements can be found here.
Rentalis Protected Cell is governed by the cell insurer code. Rentalis’s capacity is achieved by ceding risk to reinsurers appearing on the US Treasury department list of admitted reinsurers. Alabama has unique captive cell statutes which allow the cells to be incorporated into individual insurance companies. The cell is legally separated by the individual corporate structure and is seen as being a stronger structure than simply relying on laws meant to show that the assets of one cell are ring-fenced from others.
Alabama law states in Act 2006-509, p. 1153, §1. (b) A captive insurance company may take credit for reserves on risks or portions of risks ceded to reinsurers complying with subdivisions (1) through (4) of subsection (c) of section 27-5-12.
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The captive insurance market continues to remain “resilient, effective, efficient and profitable,” with rising premiums and lower combined ratios compared with the traditional insurance market as it further expands to cover evolving risks. A.M. Best Co. Inc