agents in the US learn of the opportunity to earn more than just their commissions.

An innovative new captive insurance company, Independent Agents Insurance Company, has been established in Bermuda for use by insurance agents in the United States.

This creative captive, one of the first to be set up under the new Segregated Accounts Act, will enable the agents to participate in profits from the business they generate.

The captive is owned by Leading Edge Holdings, a Bermuda based company which was set up by the Independent Insurance Agents Association of New York, the New York state affiliate of Independent Insurance Agents Association.

Affiliated associations from other states will be participating as the captive expands business.

Robert Menikheim, chairman and chief executive of Leading Edge and its subsidiaries, said: "We looked at all of the offshore domiciles and onshore locations like Vermont.

"We wanted to be in a place that had credibility and all the service infrastructure. After much research we decided that Bermuda was the best place to get the company going. We formed the Bermuda holding company, Leading Edge, in order to raise capital. This led to the formation of Independent Agents Insurance Company, a Class 3 insurer.'' $1.5 million was put up in mid 2000 by the associations and independent agents to capitalise the holding company, which now seeks a further three to five million dollars. There are 26,000 member firms who represent around 60 percent of independent agencies in the US who write about $150 billion of property casualty insurance, a major share of the US market.

A captive set up under the Segregated Accounts Act comprises a number of separate cells within the one body. While each cell's business is separate from the others, it remains part of the whole body. There is no statutory limitation to the number of cells the entity may have, but its licence requires that the cells do not retain any risk.

In this instance each cell of the captive may relate to the business of one agent, a group of agents in an association or one association. Any risk gap between the insured and reinsured will be covered by either a letter of credit from the agents or third party investment, in order to comply with no risk retention regulation. A shareholders agreement sets out the terms of profit sharing and what happens in a loss situation.

This mechanism will allow the agents to share in some of the underwriting profits from business, rather than just taking commission. Mr. Menikheim said this has been discussed at length with the carriers and, rather than feeling threatened by a possible loss of profits, they feel this is a link that should strengthen participating agents. Agents will be looking more to profitability as they have got some of their own money on the table. A number of US carriers will be used for fronting arrangements.

Various options are open for use of the captive. Agents may invest in it, use it and participate in risk sharing arrangements or use the captive as an alternative market for their mid and large size clients.

Powerscourt Management have assisted in setting this up and will manage the captive. Powerscourt's Andy McComb said: "They are developing the company from a traditional rent-a-captive approach into a more flexible alternative risk transfer facility without leveraging their capital at this time.'' The company is also using the services of AS&K, Arthur Morris and the Bank of Bermuda.

Mr. Menikheim said initially it will be the New York association using the captive, but they anticipate expansion to where all the US associations are using it.

"We hope to create new business opportunities that didn't exist in this market before,'' he said.

"But it is a huge education curve to get agents to understand what this is about, so it gives them comfort to know the association is involved.''