Compare Your Participation Options

Participation structure Matters

What reinsurance structure is best? It's a very subjective question, what is best for you can be completely different than what works for others.

The Traditionals VS The New Arrivals

CFC and NCFC vs CFC+/CFCR/ Dowc re

CFC and NCFC: The Reinsurance you know

  • Traditional Offshore/native tribes set up, all premiums are invested

  • CFC governed by 831b limits, NCFC requires a board of directors. Partial Ownership of multiple CFCs allowed

  • Pay taxes on investment income annually, earned premiums not taxed*

  • Borrow against earned premiums, some borrowing or access up to 50% of unearned premiums allowed at provider discretion

  • The "steady" option, with managed loss ratios. Losses need to constantly be monitored under ALL plans and cost adjustments are frequently required

CFC+/CFCR/DOWC RE: Lots of names for the same thing, a CFC with retail accounting practices

  • Just like CFC and NCFC, Offshore or Native tribe set up

  • Governed by 831b limits, Partial ownership of multiple CFCs allowed

  • Accounts use retail accounting practices, this allows deferral of taxes due until the account shows positive net investment income. Typical time to positive is 8-12 years. Account can be sent to runoff before positivity is reached and a new account can be created.

  • Borrow against earned premiums, some borrowing or access up to 50% of unearned premiums allowed at provider discretion

  • No more risky than a CFC, added tax benefits fit most dealer profiles

Higher Risk, Potential For Higher Reward

DOWC VS Dealer Obligor

Dealer Owned Warranty Company/DOWC: Your warranty company

  • Fully onshore insurance company formation required, typically $50,000 to $100,000 initial ceding to form

  • Not governed by 831b limitations, can be good for larger groups or enterprises.

  • Accounts use retail accounting practices, this allows deferral of taxes due until the account shows positive net investment income. Typical time to positive is 8-12 years.

  • Borrow against earned premiums, some borrowing or access up to 50% of unearned premiums allowed at provider discretion

  • 3rd party administration handles premiums and claims, sent to B account when earned out.

Dealer Obligor: Keep your premiums, invest how you want, pay your claims

  • No company formation required, just initial set up and registration.

  • Not governed by 831b limits

  • Remit admin fee only on contracts, retained premium treated as business income, paid claims as business loss

  • Use and invest premiums as you desire, including investing into your own growth I.E. store acquisition or expansion

  • Claims billed as they come, regular reporting on losses. You carry full risk of claims and this structure is NOT recommended for dealers looking to sell.

No-Risk Options

Retro and Reverse Retro VS Walkaway

Retro and Reverse Retro: Let the provider carry the risk while still participating

  • Receive regular checks for a percentage of the earned premium based on loss ratios after 18 months of production, requires minimum production. Reverse retro can be available with production history and loss ratio history to avoid 18 month waiting period.

  • Not governed by 831b limitations, can be good for larger groups or enterprises.

  • Treated as business income

  • No premiums to borrow from, certain providers may allow for loans based on historical production

  • 3rd party administration handles premiums and claims. Lose the ability to override claims as a dealer.

Walkaway: no participation, and no minimum contract production and no risk.

  • No participation, but no requirement for contract production

  • Not governed by 831b limits

  • Remit full contract cost and provider administers the rest

  • 3rd party administration handles premiums and claims. Lose the ability to override claims as a dealer.

Want to learn more and discuss which option works best for your store? Book a meeting below