Generally speaking, reinsurance exists when an insurer- “front insurer”- transfers the reserved premium funds on insured risks to a second entity, the “reinsurer,” which then takes the risk of claims, and retains the underwriting profits when the risk expires, plus any accrued investment income earned by the reserved funds.
In the Portfolio program, the front insurer is listed on the contracts sold to consumers (VSC, GAP, warranty, or ancillary). After the business is remitted by the dealership, the funds reserved to cover claims (“premium reserves”), less fees, are transferred to and held by an Affiliated Reinsurance Company (ARC) closely associated with the dealer. These reserves are used to pay any claims, and ultimately the ARC earns the underwriting profits and investment income. Portfolio structures the ARC and profitably manages the month-to-month operations of the ARC.
Also, for purposes of Federal tax law, the Portfolio program’s structures are considered reinsurance companies and are treated as such under the Internal Revenue Code. At the same time, many states and other jurisdictions do not classify these companies as “insurance” or “reinsurance” companies. For clarity throughout this web site, we will continue to refer to them as reinsurance companies.
Prospective clients in any of the 50 states are eligible for Portfolio reinsurance management services.