The featured article below draws out the benefits of taking risk-in-house, and in particular the benefit of setting up an underlying Protected Cell Company (PCC) rather than a full Captive. However, this is only one part of the jigsaw. If the underlying risk profile of your core business is categorised as insurance then the underlying PCC can only be reinsured into.
As a consequence a licensed insurer will need to be approached and a reinsurance agreement entered into between the licensed insurance entity and the PCC. Furthermore, as the licensed insurer entity is taking both the regulatory and the credit risk they will need to satisfy themselves that the product offering is not in breach of any regulatory requirements or good practice guidelines and that the balance sheet of the PCC can weather the payment of claims.
A Revolving Letter of Credit can be set-up to alleviate the Credit risk with the licensed insurer being the beneficiary, however, the Bank is likely to charge fees of up to 1.5% for issue of the Revolving Letter of Credit.
Coversely, you may want to apparise yourself as to the credit standing of the licensed insurer, as clearly the mechanism for the flow and payment of premiums will be into the Accounts of the licensed insurer first and and then subsequently into the PARC.
Fronting Fees from "A" rated insurers with an appetite for this business are likely to be in the range of 10%, lower fronting fees may be achieved with unrated carriers, given the fact their cost of capital requirements are generally lower, however you need to feel comfortable with their financial well being.
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