With Dealer-Owned Reinsurance, You’ll be Paying Yourself, Not a Third Party!
• Dealers can self-direct investment strategy
• Programs qualify for preferential tax treatment
• Shareholders are not taxed until distributions are declared
• Distributions receive preferential tax treatment by declaring a qualified dividend or long-term capital gain.
• Dealers can choose a domicile of his or her preference
• No custodial trust necessary; dealer can access earned and unearned premium
• Programs for any size dealership, large or small
• Virtually no initial capital requirement necessary (Dealers first month contract sales will capitalize their company)
• Ability to borrow earned and unearned premium in lieu of profit distribution
What is the advantage of owning my own Reinsurance Company?
By owning your reinsurance company yourself, you will be able to expand your profit while having more control of your customers ownership experience. You receive the profits from premium reserves not paid out, instead of a third party insurance company doing so.
Does it cost a lot of money to get started?
It does not take a lot of money to get started; nor do you have to be large in volume.
Will my dealer-owned reinsurance company be successful?
For over 30 years reinsurance companies have been instrumental in building wealth by providing dealers with major opportunities in the marketing of credit life and extended vehicle service contracts for dealers. They help BHPH dealers turn potentially tricky areas such as collateral protection and warranting vehicles into profitable concerns.
Can my reinsurance company by formed offshore?
Your company can be formed in the United States or in any country where legislation permits insurance companies to operate. In fact, many reinsurance companies are domiciled outside the United States, due to the benefit of specific offshore locations such as Turks and Caicos Islands. This is a first choice because the government there has established specific regulations to allow the formation of reinsurance companies with a minimum of capital investment, while allowing all of the assets to remain in the United States.
Who controls the funds of my reinsurance company?
A Trust Agreement is put in place between the direct underwriting insurance company, the reinsurance company and the Trust Company, which directs the responsibilities of each participant in the business program. The Trust Company is Trustee of the funds. The Trustee will invest reserve funds following restriction established by the Underwriting Insurance Company in very conservative government bonds typically earning short term rates in annual income. Investment income earned on these funds belongs to your reinsurance company. The Trust Agreement allows withdrawal for only four purposes. The first is for the payment of covered repair claims, the second is for limited professional fees, the third is for payment of income taxes and the final is withdrawal of any funds in the custodial account that exceed the required reserves. The withdrawal must have the Underwriting Insurance Company’s approval.
Do the funds remain in the United States?
All of the funds paid to your reinsurance company are placed in your company’s account at a Trust Company in the United States. No funds are held offshore.
Who controls my reinsurance company's investments?
The funds placed in the custody and control of the Trust Company must be placed in investments acceptable to the insurance regulatory authorities that have jurisdiction over direct writing insurers. Laws regulating the investments of insurance companies are designed to preserve the financial soundness of these investments. The Trust Agreement requires regulatory guidelines be followed until balance sheet cash accumulated exceeds 125% of unearned premiums. Once that is attained, excess funds may be invested more aggressively and at the direction of the company ownership.
Will another dealer’s losses affect my company’s operating profits?
That’s the beauty of it — you own 100% of your reinsurance company, and you will only reinsure the business that your dealership writes through your F & I operations. So your company’s profits and losses can not be affected by any other company.
What is the extent of shareholder liability?
As a corporation, the liability of shareholders is limited to the amount of their investment in the company.
What if I can't pay the claims?
The ultimate liability for claim payments rests with the direct writing insurance company. Therefore, if your company is unable to meet its financial obligations, your liability will be limited to your formation costs plus any accumulated earnings in your company.
Does the IRS routinely audit reinsurance companies?
Having found most reinsurance companies audited to be compliant, the IRS no longer has these companies included in listed transactions. No fear should be felt if your company is properly organized and administered.
How can I be assured of proper management of my reinsurance company?
US Dealer Development (USDD) will maintain your company’s accounting records and will prepare your annual report that will be provided to the appointed tax preparer and any offshore registered agent. USDD will prepare monthly financial statements detailing all activities of reinsurance operations. USDD, in conjunction with the direct writing insurance company will monitor claims losses and project such operations through contract earn out. USDD will meet with owners periodically to review the operations and financial direction of the company.
Who handles my reinsurance company's licensing and tax returns?
US Dealer Development (USDD) will coordinate licensing and tax preparation.
How will my reinsurance company be taxed?
An insurance tax expert will prepare all tax returns for your reinsurance company. The entity will be subject to United Stated Federal income taxes even when it is domiciled offshore. Tax code sections allow a foreign insurance company to elect to be treated as a domestic insurance company. The election will be made when the company’s first Federal income tax return is filed. Because of their unique nature, insurance companies are taxed under a special set of provisions of the United States Internal Revenue Code. Your company will be taxed as a property and casualty insurance company. Property and casualty insurance companies with less than $2,200,000 in annual net premiums may elect to be taxed only on investment income under Internal Revenue Code 831 (b). These companies file form 1120PC annually.