Under the CFC structure, the dealer principal organizes and owns a reinsurance company, often domiciled in a foreign jurisdiction like Turks and Caicos Islands (TCI) or through a domestic tribal nation such as The Tribal Domicile of The Delaware Tribe of Indians. This gives the dealer full control over underwriting results, investment decisions, and loan distributions, making it a highly customizable profit center.

A properly structured CFC qualifies under Section 831(b) of the IRS code, meaning it pays tax only on investment income, not on underwriting gains. This deferral of tax on earned premiums is one of the most powerful advantages of the CFC model, allowing dealers to build wealth faster and reinvest more profit. The annual premium limit to qualify under 831(b) is currently over $2.6 million.

Unlike Retro Participation programs, CFCs can issue loans back to the dealership, providing access to capital while maintaining tax advantages. Unearned premium releases are also available, offering even more financial flexibility as your program matures and becomes profitable.

Dealers choosing this model avoid forming a C-Corporation under U.S. state law and avoid creating a licensed service contract provider entity. Additionally, the dealer avoids becoming the obligor on all contracts. This allows a third-party to file contract forms with regulators, completing lender approval filings, and potentially meeting minimum capital requirements. Not all F&I products are necessarily eligible like potentially GAP and Excess Wear & Tear (EWT) agreements as they may be excluded.

While there are more compliance steps than a Retro model, CFCs offer more dealer profit participation and control while leveraging strategic partners to carry the heavy lifting of compliance, administration and regulation. The CFC model is best for dealerships with higher F&I production volume and a long-term strategic outlook.