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The rent-a-captive concept was introduced in Bermuda 20 years ago and remains a popular alternative market mechanism. Rent-a-captives serve businesses that are unable to capitalize a captive but are willing to assume a portion of their own risk and share in the underwriting profits and investment income. Generally sponsored by insurers or reinsurers, which essentially “rent out” their capital for a fee, the mechanism allows users to obtain some of the advantages of a captive without having the expense of setting up a single parent captive and meeting minimum capital and surplus requirements. Captives have been expanding into the employee benefits arena since 2003, the year in which the Department of Labor gave final approval to Archer Daniels Midland Co.’s plan to use its Vermont captive to reinsure group life insurance benefits.The Risk Retention Act of 1986 specifically provided for purchasing groups to be created to purchase liability insurance for members of the sponsoring groups. The magnitude of the damage caused by Katrina and the potential damage Hurricane Rita might have caused had it not weakened from an intense Category 5 hurricane has triggered a reexamination, not just among insurers and reinsurers but also among public policy and political leaders, of how the United States deals with the financial consequences of such massive property damage and personal loss.

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