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HAMILTON, Bermuda-Most rent-a-captives in Bermuda thrived in 1999, and that success is expected to continue.
The soft commercial market in the United States, which some say stymies the development of captives, has led to a boom in rent-a-captives, as more and more agents and brokers sought to take a share of the profits from their top-performing books of business, captive managers say.
And as commercial insurance prices for workers compensation and other casualty risks begin to increase this year, corporate insurance programs will likely be attracted to the captive and rent-a-captive market, they say.
Bermuda could attract still more rent-a-captives if the government finally passes segregated cell legislation later this year, as is expected. The legislation was due to be in place in 1999, but it made slow progress and is now expected to be passed in the second half of 2000.
Still, not everything is rosy for Bermuda's rent-a-captive market.
A bill proposed in the U.S. Congress that would impose additional taxes on Bermuda-based insurers and reinsurers could dim slightly an otherwise bright outlook.
The legislation, which is targeted at ACE Ltd., XL Capital Ltd. and other large Bermuda-based reinsurers, could also impose new taxes on a few rent-a-captives in Bermuda that own U.S. fronting companies.
If the legislation passes, however, slight adjustments to the arrangements between fronting companies and rent-a-captives should allow members to circumvent the tax, captive managers say.
And the proposed legislation has done little to thwart interest in rent-acaptives, which still is strong in 2000, managers say.
The rent-a-captive market in Bermuda has welcomed a spate of agency programs over the past several years. The programs provide agents with an opportunity to share in the profits of their profitable books of business by placing the risks in their own rent-a-captive programs. So, in addition to their commissions and fees for the business, the agents take a slice of the underwriting profits.
The agency programs are often too small to justify the expense of establishing single-parent captives, but they can easily be slotted into existing rent-a-captives, managers say.
Agency captives made up a large proportion of the new programs at Bermuda's largest rent-a-captive, the Insurance Profit Center. IPC added 33 new accounts in 1999, while 28 accounts were not renewed....