The Rent-A-Captive Concept

The Rent-A-Captive (RAC) concept allows an entity to realize benefits unique to a captive structure through the use of a segregated accounts insurance company. The segregated structure offers a cost effective and easily executable option for those entities who are not yet ready to establish their own captive.

Rent-A-Captive Features

A Rent-A-Captive (RAC) company offers the following features:

  • Use of an established Bermuda insurance company
  • Comprises segregated accounts
  • Each segregated account forms a separate entity within the company. Each segregated account is a "company within a company"
  • Exposures, assets and liabilities of each cell are “fenced” from other cells and from company owners
  • The assets of each segregated account are legally protected from any claims from general creditors, or from other cells, at all times including liquidation
  • One segregated cell participant's funds cannot be used to pay the losses of another participant

Establishing a cell in a segregated accounts insurance company provides an immediate, competitive service, ensuring full confidentiality and ease of entry. Assets are held in segregated reserve accounts within the facility, thus allowing the client and IML to focus on risk management, risk assumption, underwriting and investment income participation, control and independent accountability. The client participates fully in underwriting and investment income profits by way of a participation agreement.

The History of Segregated Accounts

RACs were first developed in the 1970s as a quick, simple means of setting up a self-insurance program in a captive. Use of a RAC avoids the time and expense of incorporating a separate company. Instead, the RAC rents its corporate structure, core capital and insurance licensing to each participant. Segregation of cells was achieved by the private contractual arrangements of each cell. However, there was no separate legal framework to support this and it was feared that such arrangements might not be effective against creditors in the event of liquidation.

In the 1990s the concept of private legislation to codify the segregation of accounts was developed in Bermuda and a number of private acts were enacted for RAC companies. During this period the structure of these private acts changed as the concept evolved. The current Act is a result of that evolutionary process. In 2000, the Segregated Accounts Companies Act was established giving additional strength to the segregation of each cell.