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Frequently Asked Questions — PARC

What is a PARC?

A PARC (producer affiliated reinsurance company) is a corporation formed either in the United States or in an offshore Caribbean domicile for the purpose of reinsuring F&I products sold through affiliated automobile dealership(s).

What is a DAC?

A DAC (domestic administrative corporation) is an administrative corporation (C Corp) designed to be the obligor for F&I products such as VSCs. The company is not regulated as an insurance company, but files an insurance company federal income tax return and a state income tax return. The DAC is 1)owned by a dealer or dealer group, 2) typically administered by a third party provider, and 3) obtains an excess loss insurance policy.

What are the Advantages and Benefits of a PARC program?

• Maximize participation in the underwriting profits of the F&I products reinsured
• Maximize participation in investment income earned on unearned and earned reserves maintained in program
• Program is under the control of the dealer/shareholder and is completely portable
• Ability to self-direct part of the investment portfolio (earned funds)
• PARC may qualify for preferential tax benefits (i.e. small life insurance company deduction or small P&C company election)

• Distributions to shareholders are usually treated as “qualified” dividends or long term capital gains
• Ownership in a PARC offers unique opportunities for estate planning and/or retention of key employees

What is the difference between CFC and NCFC reinsurance programs?

A CFC reinsurance program involves a controlled foreign corporation (CFC) domiciled outside the U.S. that makes an election under Internal Revenue Code Section 953(d) to be taxed as a U.S. insurance company. The CFC is usually owned and controlled by a single dealer or dealer group and reinsures F&I products sold through affiliated automobile dealership(s). The CFC files a federal income tax return as an insurance company. No state income tax return is required. However, premium taxes are paid by the ceding insurer and reimbursed as part of the reinsurance treaty.

An NCFC reinsurance program involves a non-controlled foreign corporation (NCFC) domiciled outside the U.S. that is owned by at least 11 unaffiliated U.S. entities. The company is typically controlled by the administrator and/or insurance company whose products are reinsured by the NCFC. The participating dealer/shareholders own a series of participating stock but do not individually direct the operations of the company or any of the investments. The entity is not subject to federal income taxes, but does pay a federal excise tax (typically 1% of net written premium). No state income tax return is required. However, premium taxes are paid by the ceding insurer and reimbursed as part of the reinsurance arrangement.  Dividends are usually ordinary income. Capital gain rates apply to liquidation distributions.

How long does it take to form an offshore PARC?

A PARC can be formed in the Turks and Caicos Islands, BWI within 30 to 45 days from the date the new reinsurance company checklist is completed and returned to GPWA.