RENT-A-CAPTIVE SOLUTION

Unlike many rent-a-captive facilities, QUEST’s aim is to be simple, flexible and above all cost effective. Our RAC programs are set up so that the program participant receives 100% of the underwriting profit and investment income earned on the program. This can be accumulated offshore on a tax free basis.

QUEST is indemnified against losses on the program by the participant and the profits are returned to the program participant by way of a Supplemental Agreement. Our only charge is based on a sliding-scale percentage of the program premium and in some instances, a percentage of the invested assets. Unlike some other RAC facilities we allow the participants flexibility in designing their own investment program.

QUEST has long-established, close contacts with a number of specialist underwriters. We don’t use just one. We take the participant’s submission, cover this specialized market and come back with the best deal in terms of cost and coverage.

QUEST’s RAC facility is Quest (SAC) Limited which was formed under the Segregated Accounts Companies Act 2000 (the “Act”) in Bermuda. The Act allows companies to operate segregated accounts enjoying statutory divisions between accounts. The effect of such statutory division is to protect the assets of one account from the liabilities of other accounts. Therefore each RAC program is protected from the results of all other RAC programs of the company.

Components of the Quest Rent-a-Captive Program
 

• Insurance Policy
  A licensed and admitted insurance company (fronting company of the participant’s choice) will issue an insurance policy to the insured. For that policy the insured will pay a premium determined by state rating formulas or expected losses plus fixed costs. In some instances Quest (SAC) Limited will issue the policy direct.
   
• Reinsurance Agreement
  The insurance company will deduct operating expenses from the program premium and cede the balance (the loss fund) to the RAC via the reinsurance agreement. Under the terms of the agreement the RAC will participate in losses up to a specific and aggregate limit. The specific and aggregate stop loss provided will be based on the program participant’s risk appetite and evaluation of historical loss data.
   
• The Indemnification Agreement
  The Indemnification Agreement guarantees the return of underwriting profit (Premiums less expenses and losses) and investment income directly to the program participant.
  The Agreement also indemnifies QUEST for any losses incurred on the program.
   
• Segregated Accounting
  Each RAC program stands alone and does not share risk with any other program thus guaranteeing that underwriting profit is determined solely by its own loss experience. There is no pooling of risks or funds with other participants. This is regulated in accordance with the Act.
   
• Collateral
  In most cases the Loss Fund is not sufficient to completely fund the aggregate liability. In this case the program participant must fund the difference through a letter of credit, cash or other acceptable security.
   
• Investment Policy
  Provided that QUEST is satisfied with the security of such investments, funds may be invested in accordance with the participant’s instructions.
   
• Unbundled Claims Handling and Loss Control
  There is the ability to unbundle claims and loss control services to a Third Party Administrator at the choice of the program participant.
  
  What can be put into a Rent-a-Captive program?
  
  The type of business that is generally placed includes Workers’ Compensation, General Liability, Auto Liability, Professional Liability, Medical Malpractice and Property.
  
  There is no limit to the amount of premium that can be placed in a program but the minimum is usually $ 750,000 combined annual premium.
  
  What are the benefits?
   
• Underwriting Profit
  
  If business, which has had historically low losses over a number of years, is placed into the QUEST RAC Program then the underwriting profit accumulated tax free offshore goes directly to the program participant, not to a commercial carrier.
   
• Investment Income
  
  An added bonus is the investment income which the participant can earn in a RAC Program. This stems from the time delay on the payment of losses. For example, a liability loss incurred in a specific year may actually be paid over a five to ten year period or even longer. During this time, these funds with the premiums now in the form of loss reserves, remain available for investment and the program participant, not the commercial carrier, will be entitled to the investment income derived.
  
  Additionally, the investment policy is at the direction of the program participant.
  
  Rent-a-Captive Example (Workers’ Compensation)
  
  Fronting company cedes first $ 250,000 per occurrence and provides aggregate coverage attaching at 80% of gross premium.
   

  Gross Premium	$ 2,000,000	100%
  Expenses*	$    700,000	35%
  Loss Fund	$ 1,300,000	65%
  Aggregate Attachment	$ 1,600,000	80%
  Potential Unfunded Liability	$    300,000	15%

  * Expenses include:
  Agents Commissions
  Management Fee
  Policy Issuance
  Claims Handling & Loss Control Services
  Specific & Aggregate Reinsurance
  Taxes
  
  * This is an average expense ratio. Expenses can range from 20% to 50% depending on program and excess reinsurance requirements.
   

  LOSS UP TO $ 1,000,000 LOSS UP TO $ 250,000

  PER RISK EXCESS REINSURANCE $ 750,000 XS $ 250,000 LOSS FUND $1,300,000 EXPOSURE TO RAC CELL $300,000 AGGREGATE REINSURANCE XS $ 1,600,000

  The potential exposure of $ 300,000 would be funded in the form of cash contributions and/or letter of credit or guarantee.
  
  The following chart is an illustration of the way in which this Rent-a-Captive program would be structured.