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AVENTURA, Fla. -- Rent-a-captives may be poised to take on new prominence among risk financing options, if the amount of conversation about the facilities during the World Captive and Alternative Risk Financing Forum is any indication.

While policyholders might be growing more aware of the attractive risk transfer opportunities that rent-a-captives may offer, there's also potential new interest from captive insurance domiciles, with Vermont examining the possibility of allowing rent-a-captives to form there.

Although the rent-a-captive concept has been around since at least the 1970s, "I believe there's remarkable potential for creative uses of this vehicle," said Michael J. Burns, an attorney with Appleby, Spurling & Kemp in Hamilton, Bermuda, who participated in the rent-a-captive panel at the Nov. 16-19 conference in Aventura, Fla.

"The quiet years are over, and the fun is now ready to begin," Mr. Burns said. "The rent-a-captive concept has been in something of an evolutionary stage. But it has been used in specialized situations for almost as long as the captive concept has been around."

Another panelist, Michael Maglaras, principal at Michael Maglaras & Co. in Stamford, Conn., dispelled what he said may be some common notions about rent-a-captives, among them that rent-a-captives are only for smaller risks.

"Why?" he asked. "Is that written in stone somewhere?"

He also disputed suggestions that they are only useful for workers compensation and liability lines, suggesting rent-a-captives can be used for any kind of coverage.

"I don't know why a rent-a-captive owner wouldn't talk seriously to you about any kind of program you were willing to securitize," Mr. Maglaras said.

"The risk that you put into that rent-a-captive is between you and the owner of that rent-a-captive," he said.

He disagrees with the notion that rent-a-captive users are unsophisticated buyers. "Well, I know that's not the case," Mr. Maglaras said. "Smaller and smaller and smaller insureds are getting more and more and more sophisticated."

A rent-a-captive can be a cost-effective and flexible alternative risk management solution compared with commercial insurance, Mr. Burns noted, and can offer participants many of the advantages of a wholly owned captive but without the higher start-up and ongoing operational costs.

A rent-a-captive also might offer secure coverage for specific risks not otherwise insurable or for which coverage would be too expensive in the traditional market.

"A lot of people who are in equity captives all very easily fit into a rent-a-captive scenario," Mr. Maglaras said.

But a rent-a-captive decision requires as much thoughtful planning as an equity captive decision, Mr. Maglaras noted.

"Before you enter a rent-a-captive, you probably need as much feasibility analysis as you do before you enter an equity scenario," he said. Among the things to examine are the means, degree and method of risk financing.

"The feasibility analysis always discusses, 'Is this a necessary part of the evolution of my risk financing program?' " Mr. Maglaras said. It also must study the nature of the risk, the location of the rent-a-captive, its governance structure, and legal and tax implications.

Among the questions a company must answer is: how much is it willing to pay for the complete control over its risk financing vehicle that a wholly owned captive would provide; and how much control over the captive does the company really need?

"It could be that I need less than I think I do, in which event a rent-a-captive makes a lot of sense," Mr. Maglaras said.

Although rent-a-captive participants might not enjoy the same sort of control they would over an equity captive, they can achieve certain levels of control in key areas.

For example, Mr. Burns said, rent-a-captive policyholders may by negotiation maintain significant control over the way the rent-a-captive's reserves are invested and the rate of the flow of the funds through the captive.

Direct access to reinsurers is another key concern, he noted. In a rent-a-captive, the insured company doesn't own the captive, so it wouldn't enter into reinsurance contracts. Consequently, if sitting down at the meetings with the reinsurers is critical to the insured, forming an equity captive might be the way for that company to go, he added.

For now and for some time, Bermuda has had the preponderance of rent-a-captive formations.

"I think we can acknowledge that the rent-a-captive is the product of the offshore industry," said Mr. Burns.

"The good news about Bermuda is you can shop 'til you drop," Mr. Maglaras said. "There are plenty of rent-a-captives available."

"As things stand now, you can't go to Vermont and rent a captive. You can't go to Colorado and rent a captive," he said. "I think over time that's going to change a little bit. But for now, Bermuda is still where you go for a rent-a-captive."

Consequently, one of the questions a company must ask itself when considering a rent-a-captive is whether its program could benefit from being onshore. If so, for now at least, it's probably excluded itself from using a rent-a-captive.

Nicholas Dove, president of Skandia International Risk Management in Hamilton, Bermuda, and the session's moderator, noted that sometimes using a rent-a-captive can be an educational step for a company's management before making the full-fledged leap into an equity captive.