KRM Risk Management
& Insurance Services

Rental Captive: Single

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Minimum of $500,000 annualized premium.


The Corporation receives the Underwriting Profit and Investment Income.


Available for a single location or multi-state operations.


Takeout Credits given to accounts in states where permitted.


A pledge of Investment Income and/or collateral may be required to secure up to the aggregate attachment.


Policy formats include: Guaranteed Cost, Retrospectively Rated, and/or *Large Deductible.

* The application of a Large Deductible to the insurance policy allows for credits to be applied to the insureds premium thus reducing the premium and expenses (taxes / RML's). A Large Deductible, typically $250,000, takes the place of the Specific stop loss. Through collateral and/or cash contributions, the client is responsible for all losses within the deductible layer and up to the aggregate attachment.


TOP Insurance Agency suggests to their client, ACE Manufacturing Company, that they would be an ideal candidate for a Rental Captive program since they are paying about $1,000,000 annually for their workers' compensation exposure. ACE has operations in four states and has had good loss history over the past few years as a result of taking a proactive approach to risk management. The client has considered developing an all encompassing insurance program that is loss sensitive and provides them with greater control of managing their own risk. A KRM Rental Captive plan does exactly that by providing a contractual guarantee for the return of underwriting profit (premium less expenses and losses) and investment income earned from unearned premium reserves and outstanding loss reserves directly to the insured. In addition, claims handling and loss control services can be unbundled to a third party administrator adding to the insured's hands on approach to risk management.

ACE Mfg. provides TOP Insurance Agency the necessary information pertaining to their workers' compensation exposure including historical loss runs, payrolls and premiums. TOP Agency puts together an application and forwards the submission to KRM Risk Management Services. KRM then markets the account to several licensed and admitted insurance companies to provide a competitively priced statutory workers' compensation policy.

KRM receives a quotation from MACRO Insurance Company and informs TOP Agency that the workers' compensation Rental Captive proposal is ready to be presented to the insured. TOP Agency asks that a KRM professional be available for the meeting to assist with the presentation to the client. The premium and expenses quoted by MACRO Insurance Company are as follows:


Premium                $1,000,000.            100.00%

Expenses                  380,000.             38.00%

    Policy Issuance                             7.00

    Specific* & Aggregate Reinsurance           8.00

    Taxes, Boards, Bureaus & Residuals**        8.00

    Captive Management                          2.00

    Claims Handling & Loss Control              6.00

    Brokers Commission                          5.00

    KRM Fee                                     2.00

Loss Fund              $  620,000.             62.00%

Aggregate Attachment   $  820,000.             82.00%

Potential Liability    $  200,000.             20.00%

Maximum Exposure       $1,200,000.            120.00%

*Specific Stop Loss: $ 250,000.
**Taxes, Boards, Bureaus & Residuals are determined by each individual state and are adjusted to actual.

During the presentation, it is discussed that through a KRM Rental Captive program, ACE Mfg. will pay their insurance premium during the policy year based on each state's individual rating guidelines. The expenses will be deducted and the balance ceded to the Rental Captive. A loss fund is established from the ceded premium to pay for ACE's worker's compensation losses. Ceded funds that are not used to pay for expenses or losses will be returned to the ACE Mfg. as underwriting profit. All investment income generated from unearned premium reserves and outstanding loss reserves will also be returned to the insured through a contractual guarantee between the Rental Captive and ACE Mfg. The flow of funds are depicted in the Program Partnership diagram at the right.

ACE Mfg. understands that while participating in a Rental Captive plan, they should be willing to assume some risk. They in turn ask what is their exposure to risk. It is explained that each participant of a KRM Rental Captive program assumes a specific and aggregate loss retention. The specific retention addresses any one single loss while the aggregate retention is for the accumulation or frequency of all losses within the policy period. Ceded premium to the rental captive will serve as a loss fund to pay for the insured's workers' compensation losses. If the ceded premium is not sufficient to fund the entire aggregate position, the client must then secure the difference between the ceded premium and aggregate reinsurance attachment. The risk to the insured is thus determined by a specific and aggregate retention and the additional amount needed to secure the aggregate reinsurance attachment. See the Partnership Participation diagram below. Security for the unfunded portion of the aggregate is provided by the client in the form of cash contributions and/or a letter of credit.

As outlined in the proposal for ACE Mfg, the premium quoted by MACRO Insurance Co. is $1,000,000 for a guaranteed cost workers' compensation policy. From the premium, $380,000 of expenses are deducted and the remainder of $620,000 is ceded to the Rental Capptive to establish the loss fund from which ACE Mfg. losses will be paid. The specific stop loss is set at $250,000 which addresses any single loss and the aggregate reinsurance attaches at $820,000 for the accumulation of all losses. The difference between the ceded premium and the aggregate attachment is $200,000 which the insured is required to secure through cash contributions and/or a letter of credit. Specific and Aggregate Reinsurance is provided excess of the insureds retention to cover any losses that should penetrate either loss limitation.

Upon entering into a KRM Rental Captive plan, the insured interacts with a non-affiliated rental captive through a Program Partnership Agreement. The Program Partnership Agreement defines the responsibilities of the insured and Rental Captive including the terms for which underwriting profit and investment income will be returned.

KRM also provides ACE Mfg. with the following pro-forma of the final net cost of the program based on the insureds annual average workers' compensation losses of $500,000:

Net Cost Formula: Losses + Expenses - Investment Income = Net Cost

Losses               $500,000.

Expenses             $380,000.

Investment Income*   $109,645.

Net Cost             $770,355.

* Based on a 7% annual return and a 5 year claims payout period.

ACE Manufacturing Company decides that a KRM Rental Captive program is a perfect fit to handle their workers' compensation exposure. ACE's account is easily implemented into a Rental Captive as MACRO Insurance Company binds coverage and their Program Partnership Agreement is prepared and signed.

This sample workers' compensation Rental Captive scenario was designed to provide an example of how most programs are structured. Taxes and Residual Market Loads will vary from state to state thus affecting the total expense component of each program. A large deductible policy and/or the use of take-out credits can be utilized in states where permitted to help reduce the overall net expense of the Rental Captive plan. In addition, claims handling and loss control services can be quoted net of the total expense load allowing the client to pay the TPA directly. There are many options and alternatives under a KRM Rental Captive program to best address each participant's objectives and circumstances. Your KRM representative is available to explain all the options.

All names and situations contained within this KRM Rental Captive scenario are fictitious.