Reinsurance & Profit Participation Formations
The types of reinsurance and profit participation formations available to a car dealership can vary, from simple profit-sharing to establishing a dealer-owned company. These allow the dealership to earn from underwriting profit and investment income on F&I products such as vehicle service contracts, GAP insurance, and limited warranties.
Dealer-Owned Reinsurance Companies
Dealership owners can create a separate entity to act as a reinsurer, assuming both risk and profits.
Controlled Foreign Corporation (CFC) / Producer Affiliated Reinsurance Company (PARC)
Offshore or tribal-domiciled reinsurance company
Offers tax-deferred accumulation of wealth
Dealer owns 50% or more
Fronting insurer keeps ultimate liability, dealer assumes underwriting risk
Non-Controlled Foreign Corporation (NCFC)
Dealer owns less than 50% in a pooled reinsurance company
Shares in profits and investment income
Limited dealer control and involvement
Dealer Owned Warranty Company (DOWC)
On-shore, U.S.-domiciled C-Corporation
Acts as the primary obligor to the customer
Maximum dealer control over product design, pricing, claims, and reserves
Backed by a Contractual Liability Insurance Policy (CLIP) for protection
Profit-Sharing / Commission Programs (Non-Reinsurance Formations)
These allow profit participation without forming a separate insurance entity.
Retrospective Commission (Retro Program)
Dealer earns an upfront commission
Later receives additional profit share based on performance
Low-risk: dealer doesn’t bear losses
Guaranteed Retro (GR) / 1+ Commission
Similar to Retro, with guaranteed or scaled payouts
Maximizes upfront cash flow
Key Profit Components
Underwriting Profit: Remaining funds after claims and expenses
Investment Income: Earnings from investing unearned premium reserves
Choosing a Structure
The right formation depends on dealership size, financial goals, risk tolerance, tax strategy, and desired control level.