Reinsurance 101: A Dealer’s First Steps to Profit Sharing – From Michael Aufmuth

I want to discuss the basics of how to set up a reinsurance program. Many dealers have heard about reinsurance, but it can seem complicated or out of reach. Once you hit the right contract volume, getting started is straightforward. My goal here is to give you a clear roadmap from building your volume to choosing the right structure so you can move from leaving money on the table to building long-term wealth through reinsurance.

Step 1: Building Your Volume (Start Where You Are)

Reinsurance works best once your dealership is consistently writing about 20 to 25 service contracts per month. That volume gives you the scale needed for underwriting profits and investment income to build real wealth over time.

If you are not there yet, that is okay. Many dealers start with a retro profit-sharing program. This allows you to share in profits immediately while you build toward full reinsurance. It serves as a stepping stone, keeping you engaged with the back end instead of leaving everything to the administrator or carrier.

Step 2: From Direct Writing or Retro to Reinsurance

When you reach the right volume, it is time to look beyond retro and into reinsurance. This is the point where you can stop leaving profits behind and begin owning your own reinsurance company.

To make the transition clear, we create a pro forma analysis. This 10-year view shows: Five years of active contract writing at your current volume. Five years of run-off, where the contracts you have already written continue to generate profit.

This projection helps you see exactly how reinsurance builds wealth and why it outpaces a retro program or direct-writing model.

Step 3: Starting a Reinsurance Program Begins with Choosing the Right Structure

Starting a reinsurance program begins with choosing the right structure. There are several options available including NCFCs (Non-Controlled Foreign Corporations), CFCs (Controlled Foreign Corporations), Super CFCs, and DOWCs (Dealer-Owned Warranty Companies).

At Elite FI Partners, we will review these options with you so you understand the pros, the limitations, and where they fit. Most dealers with steady contract volume will end up in a CFC structure because it provides the right balance of compliance, control, and long-term wealth building. From there, we will also review domicile choices, such as Turks and Caicos or Tribal formations, and guide you toward the setup that best fits your business.

Step 4: Warehousing Premiums and Getting Started

Here is where a lot of dealers have questions. How do I actually get started?

The process is simple. As soon as you decide to move forward, we begin warehousing premiums. That means the very next contract you write is held aside to fund your reinsurance company. You are not losing time or money while the entity is being formed.

Depending on domicile and structure, the formation process can take anywhere from a month to six months. Once complete, the warehoused premiums are transferred into your reinsurance account. From that point forward, you are not just writing contracts. You are building equity, investment income, and long-term wealth.

Step 5: Ongoing Reviews and Support

After setup, we do not just leave you on your own. Our team at Elite FI Partners provides monthly statement reviews and ongoing support to make sure you are confident in your numbers and maximizing results. Reinsurance is more than a financial structure. It is a long-term wealth strategy, and we are here to guide you through every stage of growth.