As in modern rent-a-captives, the assets of each participant or cell in sponsored captives are walled off from the exposures of other participants. The new strategy, however, has taken off domestically only in Vermont, which has eight sponsored captives licensed so far.

Five of the eight are mortgage insurance captives, including Triad Re, which is owned by Triad Guaranty, a Winston-Salem, North Carolina­ based mortgage insurer. Triad rents cells in its sponsored captives to mortgage originators seeking to transfer their mortgage risks. "The strategy helps them lay off risk much like they do in commercial insurance markets, but since it's a captive, they get to keep the underwriting profits and investment income," says Smith, who manages Triad Re.

Meanwhile, Hallmark Cards Inc. is the first cell occupant of an employee benefits captive sponsored by John Hancock Mutual Life Insurance Co. "We're using our cell for the health insurance benefits we provide retirees," explains Richard Heydinger, former director of risk management services at the Kansas City, Missouri-based greeting card manufacturer. (Heydinger retired in January.)

Prior to funding the cell, Hallmark did not fund its retiree benefits, other than through internal resources. "We wanted to fund our retiree benefits, and we knew we wanted to do it with an insurance vehicle," says Heydinger. "We passed on commercial insurance because of the cost. Basically, we wanted all the formalized self-insurance benefits of a captive without having to fully capitalize and operate it." -- R.B.

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