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SEGREGATED CELL/RRG COMPANY The advent of the “segregated
cell/RRG” type of rent-a-captive and Risk Retention Group Insurance Company
has created a myriad of new and interesting possibilities for captive or RRG
owners. Segregated cell
rent-a-captives or RRG’s differ from conventional rent-a-captives in one
important way – the firewalls separating each member’s assets are legally
enforceable by law. Conventional
rent-a-captives segregate assets through contract alone. One of the more
interesting segregated cell applications involves the conversion of single-parent
equity (owned) captives or RRG’s into segregated cell or RRG companies. The typical single-parent captive insures
general liability, and perhaps automobile liability exposures. One of the recognized criteria for taking
such a deduction is the presence of third-party business, i.e., insurance
premiums from parties unrelated to the captive’s shareholder(s). Single-parent captives/RRG’s may insure
third party risks; however, there is no structural way to avoid significant
risk sharing between the shareholder’s and the third party’s risks. In these instances, assuming third-party
risk can be extremely dangerous, especially if the third parties escape
rigorous underwriting evaluation. A segregated cell captive or RRG allows the
facility to assume third-party business without having to share in the
majority of the third-party’s risk.
The illustration below exemplifies a typical segregated cell captive
or RRG. |
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Legal firewalls separate
each cell or RRG/s assets from one another.
The captive/RRG risk resides in the general account, which also holds
a small percentage of each cell/RRG/s risk, thus creating the necessary risk
sharing for all parties. This is only
one innovative use of segregated cell/RRG captives, albeit one of the most
effective. |
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F.
Darrell Lindsey State
Approved Captive/RRG Manager |
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