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Reinsurance sidecars are conventionally referred to as Sidecars. These are financial structures that have been are created to allow investors to participate in the risk and return of a group of insurance policies (a "book of programs"). Reinsurance Sidecar Investments These are written by an insurer or reinsurer (hereafter re/insurer). They earn the risk and return that arises from that business.

A re/insurer will pay ("cede") the premiums related to a book of programs to such an entity if the investors place sufficient funds in a trust account to be pledged to ensure that it can meet claims should they arise. The liability of investors is limited to these funds. Reinsurance sidecar investments have become very prominent in the aftermath of Hurricane Katrina. They are now a vehicle for re/insurers to add risk-bearing capacity, and for investors to now participate in the potential profits resulting from re/insurance. After 9-11, an earlier and smaller generation of sidecars was created for the same purpose.

Reinsurance Precedents

Reinsurance Sidecar investment have precedents in the reinsurance industry under the name "quota-share reinsurance." In these agreements, a re/insurer cedes to the quota-share reinsurer a percentage of all the premiums resulting from a book of business. This is in exchange for the reinsurer bearing the same percentage of the liability for the losses. The quota-share reinsurer pays a ceding commission to compensate the ceding investor for their expenses. The ceding commission also includes a profit allowance which increases in proportion to the profitability of the programs. These reinsurance treaties currently provide ceding companies with the ability to write more insurance policies (more premiums) than would be possible based on their own capital. They also earn a certain amount of fee-based income (through ceding commission). This quota-share reinsurers act like an insurance wholesalers. It allows them to earn a return on capital without having to create primary insurance distribution (also know as a Fronting Company). Lloyd's of London is one such re/insurer. It "names" acts as such reinsurers, pledging the resources of investors and firms at risk in order capitalize books of business written by insurance brokers, agents and underwriters.

The Market has grown since 9-11 and Hurricane Katrina

After 9-11, the strategy of raising funds from capital markets investors to support quota-shares arose. A handful of such ventures were created (DaVinci, Olympus, Rockridge). These were a natural outgrowth of the development of re/insurance as an asset class and were the first true sidecars.

After Hurricane Katrina the sidecar idea became very prominent among investors. This was because it was seen as a way to participate in the risk/return of the higher-priced ("hard") reinsurance market – and without investing in existing reinsurers (who might have liabilities from the past that would undermine returns) Three such entities were up and running by year end 2005 (sidecar, capital raised, ceding re/insurer, book of business).

Flatiron, Arch Capital

Blue Ocean, Montpelier Re

Cyrus, XL Capital

These entities have been created since 2006 (sidecar, capital raised, ceding re/insurer, book of business):

GENRE, Genaral RE owned by Warren Buffett, catastrophe reinsurance

EII, Equity Insurance International, high margin selective niche reinsurance

Kaith/K5, Hannover Re, several lines of insurance and reinsurance

Petrel, Validus, marine and energy reinsurance

Helicon, White Mountains Re, property catastrophe reinsurance

BayPoint, Harbor Point, selected short-tailed lines of business

Timicuan/RPP, Renaissance Re, reinstatement premium protection

Starbound, Renaissance Re, Florida treaty business

Sector Re, Swiss Re, property catastrophe and aviation reinsurance

Castlepoint Re, Tower Group, program and specialty insurance

Sirocco, Lancashire Re, Gulf of Mexico offshore energy

Monte Fort Re, Flagstone Re, peak zone and ILW (industry loss warranty) coverage

MaRI, Marsh / ACE, US commercial property [1]

Concord, AIG, US commercial property business

Total capital investment has been raised to over $12bn as of September 2008 and had established sidecars as a major capital raising vehicle for catastrophe risk.

Reinsurance Participants

Many Lead equity investors that have been publicly disclosed. These include First Reserves, J.C. Flowers, Goldentree, Goldman Sachs, Highfields, and Farallon.

Many Investment banks – including Aon Capital Markets, Merrill Lynch, Goldman Sachs,, Morgan Stanley, Deutsche Bank and Swiss Re Capital Markets have provided advice on the creation of sidecars, usually alongside specialist consultancies Risk Management Solutions.

Also, many law firms have been active in this space. These include Wilkie Farr, Cadwalader, Conyers Dill & Pearman in Bermuda, Wickersham & Taft, Debevoise & Plimpton, and others in the US and Offshore.

Implementation of a Financed Physician Retirement Plan

This is my best effort at explaining the details. After you read it, I encourage you to select contact us so we can help you with any remaining questions.

Physician Retirement Plans

Step 1: You will have your practice/company enters into a financing arrangement with a lending institution with extensive experience in Financed Physician Retirement Plan. The loan is paid on a 6% simple interest-only basis for 10, 15, or 20 years and can even be renewable for longer periods of time.

There is no personal guarantee required for the loan.
The Programs can start as small as $100,000
Commercial lending structures minimize early term-out risk possibilities that can occur with Federal and state chartered banks under Evergreen rules. 10, 15, 20 years interest only notes provide for consistent funding budgets
Plan Administration through the banks program offers help to both the company and the participants booking the program on corporate and personal tax returns for the life of the program.

Step 2: Your practice/company will enter into an agreement with you the physician - designed so that the physician recognizes limited or no income upon receipt of the proceeds. Usually, taxes are paid when the program ends and distributions begin, which the physician can anticipate and control.

The program is intended to provide you the ability to be selective and you will NOT need to include many or any of your employees – you may possibly just select yourself - the physician owner(s) of the clinic
The program is NOT intended to be a tax strategy, but you will find it to be a tax-efficient method of wealth transfer – an efficient way to move your money from the company to your personal accounts.
Based on the clinics structure, it is even possible for money to be transferred without taxation relative to various sections of the Internal Revenue Code.

Step 3: The proceeds are place in a selected insurance policy, annuity contract, or other revenue opportunity (identified on this site) with the physician as the owner. The insurance policy, annuity contract or other revenue opportunity is held as collateral for the loan created in Step 1. Specially selected universal life, annuity contracts and other revenue opportunities are utilized, and many include index accumulations products which are available.

All load proceeds are placed with A+ insurance carriers and, assuming loan completion, there is not risk of principal loss.
The contract provides principal protection.
All gains are based on a guaranteed minimum floor, based on the performance of a stock market index, or based on the growth of the private investment vehicle you selected.

Below is an example of the financial benefits of this type of plan. Contact us and learn more.

RECAP: $14,400 (+ income tax) per year will net you $2,125,684 in 20 years.

7% compounding return will net the physician $2,125,684

10% compounding return will net the physician $4,983,499

12% compounding return will net the physician $7,902,293

Executive Bonus Plan

Executive Bonus Plans: Reward business owners and key employees with life insurance paid with tax deductible business revenue. The business owner and key employees are important reason that the business is profitable. Management often use selective, discriminatory fringe benefits to reward those employees whose work is more responsible for creating profits.

Action steps defining how an Executive Bonus Plan works:

The business owner or employee takes out a personal life insurance plan and names the beneficiary.
The business then pays the premium on the policy to the insurer. The business can deduct the premium as an income tax expense.
The employee will then be required to pay income taxes on the premium.

Several benefits for the company and for business owner or key employees:

You can terminate the plan at any time
Simple administration
Premium payments are tax deductible expenses
It is relatively inexpensive
It does not require IRS qualification/reporting
You select participants

How it works...

Advantages for key employees include:

The Business dollars pay most of the employees' costs
Each individual owns and controls and control the policy and its cash values
The employee's beneficiary receives an income tax-free death benefit
It is portable — they can take it with them when they leave the company
The remaining small cost can be decreased further using policy dividend options

An Executive Bonus Plan can be an excellent low-cost method to reward employees whose hard work helps make your business profitable.

Deferred Compensation Plans

Deferred compensation plans are agreements whereby an owner defers some potion of their existing wages until a specific future date. Salary earned in one period is paid at a future date. There are both qualified and nonqualified deferred compensation plans.

A Life insurance policy can be used to finance a deferred compensation plan. The deferred wages can be used to pay premiums on cash value life insurance. The cash worth can then be available at retirement as a supplement to other income or, if the insured dies prior to retirement, the insured’s elected beneficiary will receive the policy’s death benefit.

The disadvantages of any qualified plan include:

the amount of the employer’s contributions are limited

nondiscrimination requirements prohibits an employer from providing benefits for highly compensated employees to the exclusion of other employees

regular reporting requirements

The advantages of a nonqualified plan are:

the amount of the employer’s contributions are not limited

the employer can pick and chose among the recipient employees without regard to years of service, salary level or any other criteria

allows a business to provide benefits to officers, executives and other highly paid employees

there are no significant filing or reporting requirements

a nonqualified plan is less expensive to set-up than a qualified plan

Reminder: There are special timing rules related to FICA taxes and income taxes.

Qualified plan receives favorable tax preferences under the Internal Revenue Code:

distributions are generally eligible for rollover to an IRA or other qualified plan, thereby permitting further tax deferral.

the employer is entitled to a tax deduction for the amounts contributed to the plan;

the benefits grow on a tax deferred basis until they are actually paid under the plan; and,

Reminder: Employers should have an IRS ruling regarding the tax status of a qualified plan.

A nonqualified plan does not receive favorable tax treatment:

under the doctrine of constructive receipt the benefits are taxable to the employee at such time as the employee has the right to receive the benefits without regard to when the benefits are actually paid. The taxpayer does not actually have to take possession of the funds.

the employer is not entitled to tax deductions until such time as the benefits are actually paid to the employee

Any agreements and insurance policies within a business must be integrated with the overall plan and objectives of the business. Careful consideration must be given to the selection of the plan which is right for your business and to the method of funding your plan.

Small Can Be Large in Wealth Accumulation Plans

Many investors think they have to make large yields in order to accumulate enough money for their retirement. In order to accomplish this goal, many investors turn to the stock market to reach for higher yields. As we know, this can turn out to be a recipe for disaster. Wealth Accumulation There is of course a better way to achieve stock market type returns with little or no risk!

Leverage is the answer as long a the right safe investment is utilized. By using other people's money, { borrowed money } an investor can achieve high yields without taking on inordinate risk. And the amazing thing about this strategy, a positive yield { the yield of the asset minus the cost of the borrowed funds } of just one percent compounded annually, can produce a very sizable retirement pool.

If an investor borrowed $1,000,000 at 6% and invested it in a safe earning asset at 7%, that 1% positive spread would accumulate to about $600,000 in 10 years, $1,200,000 in 15 years and $2,100,000 in 20 years. And these figures are computed after deducting the loan repayment and the cost of the interest. So, 1% positive spread can produce more of a retirement pool than most persons would have guessed!

Now let's look at a 2% spread, in 10 years it would produce $800,000, in 15 years about $1,600,000 and in 20 years $2,900,000. And let's consider a 4% spread, in 10 years it would be $1,200,000, 15 years $2,600,000 and in 20 years it would provide $5,000,000. So, a small positive spread, over a reasonable number of years, can add up too a very comfortable retirement for the participant. Now you have some understanding of how Donald Trump has accumulated so much in his lifetime. Achieving the success of Trump may not be in the cards, however; a happy retirement is certainly in reach for those who plan well. And there are investments which are safe and can provide a 1-4% positive spread!

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