Reinsurance
Need To Get In Contact With F&I Resources?
F&I Resources can handle all our client needs for reinsurance. This includes formation, monitoring, reporting, and all tax related matters. Our CFO is a CPA with over 30 years of automotive experience. We currently manage over 75 reinsurance companies for our dealers. Using our experience and excellent relationships with our carriers, F&I Resources is dedicated to maximizing the profitability of our dealer reinsurance companies.
What is Reinsurance?
Reinsurance is defined as insurance that is purchased by an insurance company (the "ceding company" under the arrangement) from one or more insurance companies (the "reinsurer") directly or through a broker as a means of risk management, sometimes in practice including tax mitigation and other reasons described below. The ceding company and the reinsurer enter into a reinsurance agreement which details the conditions upon which the reinsurer would pay a share of the claims incurred by the ceding company. The reinsurer is paid a "reinsurance premium" by the ceding company, which issues insurance policies to its own policyholders.
To put it simply, it's the transfer of the "risk of loss" from one insurance company to another.
Are There Different Types of Reinsurance?
PARCs
A Producer Affiliated Reinsurance Company (PARC) is a corporation formed either in the United States or offshore for the purpose of reinsuring F&I products sold through affiliated automobile dealership(s) or banks/financing entities. These F&I products typically include one or more of the following: Vehicle Service Contracts (VSC), Limited Warranty, Guaranteed Asset Protection (GAP), Etch/Theft products, Credit Insurance, etc.
DOWCs
A Dealer Owned Warranty Company (DOWC) is an administrative corporation (C Corp) designed to be the obligor for non-insurance F&I products such as VSCs. The company is not regulated as an insurance company, but typically qualifies as an insurance company for federal income tax purposes. The DOWC is generally owned by a dealer or a dealer group and is administered by a third party provider. The DOWC often purchases an excess of loss insurance provided by a third party insurance company.
CFC or NCFC?
A Controlled Foreign Corporation (CFC) will make an election under IRC Section 953(d) to be treated as a domestic company for income tax purposes. There is a limitation of $2.2 million a year of net premium that is allowed to be ceded into the reinsurance company.
A Non-Controlled Foreign Corporation (NCFC) doesn't have this net premium limitation but there are other factors, such as reduced control, that need to be considered. We have the ability to cede to an NCFC through Symphony Management in Bermuda and this relationship has been in place since 2001.
We will go over all your options and help pick the right set-up for you!
What Are the Advantages of Reinsurance?
- Allows you to participate in the underwriting profits from the products sold at your dealership.
- Company is 100% owned by the dealer or the person(s) they designate.
- Potential benefit of only paying taxes on investment income.
- Deferral of taxation to shareholders until they take a distribution (dividend).
- Helps with key employee retention.
- Dealer can transfer and invest earned premium, in excess of reserve requirements, on a quarterly basis at their discretion.
Not all the above advantages apply if your reinsurance company is set-up as a NCFC.
Is This Right for your Dealership?
This depends on your specific dealership characteristics but don't worry, we have the expertise to help make that determination. The bottom line is you don't want to miss out on an opportunity to increase revenues. If reinsurance is something you are considering, contact us! We can make this a turn-key operation and help manage them throughout its business life.
