Change the Story

cts-headerYou might remember that earlier this year I did a blog on women in leadership roles in the insurance industry (or the lack there of). I kind of smugly talked about how proud I was of the captive industry and specifically VCIA, in the number of women in leadership roles. And though I am still proud of the efforts in our niche, I was reminded that there is still a long way to go and we, males that is, can’t take these efforts for granted.

I was invited to an event last night that brought together male business and community leaders in Burlington, Vermont who acknowledge that gender equality means a stronger economy.  And although I continue to see extremely talented young women join the ranks of captive insurance, much of the responsibility for effecting meaningful progress toward greater equality between male and female professionals within a corporate culture will fall to the most senior executives.

One startling statistic from the organization Change the Story Vermont was that on our current trajectory, with all the advancements we have made toward gender equality, the gender gap is projected to disappear in Vermont in the year 2048 – that’s 32 years people!

With that in mind, here are a couple of things we can start to do:

  • Encourage women to apply for jobs for which you think they’re qualified but they’re likely to dismiss as beyond their experience.
  • Reach out to younger colleagues who are beginning their careers. Ask them questions about what led them to your field, what they like about their work, and where they’d like to be in 10 years.
  • Give women meaningful opportunities to lead and have a voice in decision-making by inviting them to serve on advisory committees and boards of directors.
  • Invite 1-2 young women to attend a business or social event with you; expose them to new connections and widen their professional circles. Share your own stories – successes, pitfalls, and unanticipated discoveries – with those around you; they can inspire, provide perspective, and encourage persistence.
  • Be an ambassador for inclusion – reach out to a new person in your workplace and help her settle in. When you see people excluded at work or at after-work gatherings, look for ways to change it up.

Check out other ideas and statistics at or a similar organization in your domicile. Let’s make it work!

Thank you all very much, and I look forward to hearing from you.

Rich Smith
VCIA President


This upcoming week we all will be spending time with family and friends for Thanksgiving (well, at least here in the United States). I will be trundling off to my in-laws in Buffalo for some quiet time and reflection – and of course feasting and a possible snow storm.

We have had another somewhat tumultuous year in the captive industry, but I am very thankful to be part of this amazing community which year-in and year-out supports the captive insurance industry and each other.

I hope you all have a wonderful holiday and I look forward to seeing many you at VCIA’s Holiday Member Mixer at the Hilton Burlington Hotel on December 15th! And for those of you outside the borders of the US of A, happy belated Guy Fawkes Day.

Thank you all very much, and I look forward to hearing from you.

Rich Smith
VCIA President

President Trump


I think most of us were surprised that Donald Trump won the election last week based on all the polling data that was out there. Just goes to show you that even in the risk management world with all its data, analytics, actuaries and experts, there was no figuring out this election!

That being said, just what might a Trump presidency mean for captives? Well, quite honestly, I would be surprised if captive insurance makes any list the transition team may be preparing right now; however, there may be some areas that could impact captives:

1. Dodd-Frank. Trump has said all along he wants to repeal the regulations set out in Dodd-Frank, but I think that is easier said than done. There are numerous interest groups on all sides who have a stake in the Act, and it will be slow going to push through reform even though the Republicans control Congress. That being said, House Financial Services Chair Jeb Hensarling outlined a bill earlier this year that would change some key provisions of the Act, without repealing the whole thing – provisions that might have a chance to pass. The Nonadmitted & Reinsurance Reform Act (NRRA) that was attached to Dodd-Frank when it was passed, is not in anyone’s crosshairs as far as I can tell, but VCIA’s work to seek clarification of the NRRA might move more quickly.

2. 831(b)s. It is no secret that Republicans have no love-lost for the IRS. Perhaps we will see a change in attitude regarding micro-captives (and all captives) once a new commissioner is confirmed.

3. FHLBs. Similarly, with a change in leadership at the Federal Housing Finance Agency (FHFA), perhaps we will see an acquiescence allowing captives to be able to “rejoin” the Federal Home Loan Bank program.

4. FIO. With a new Secretary of the Treasury, there will be wholesale changes throughout Treasury. The Federal Insurance Office within Treasury will most likely take more of a backseat to the NAIC on insurance issues, and probably let go of any concerns with the captive insurance industry it may be harboring. We may even see less cooperation between the US and Europe (and the rest of the OECD) on insurance regulation harmonization.

Now there are a whole slew of issues that President-elect Trump can and will affect in his tenure that can impact captives, from taxes to the economy to foreign policy, outside some of the more direct issues outlined above. Time for all you analytic gurus to get to work!

Thank you all very much, and I look forward to hearing from you.

Rich Smith
VCIA President

IRS and 831(b)s… Here we go again!

rich-groundhogThis past Tuesday, the Internal Revenue Service called for more information on microcaptives, as it seeks to determine whether the companies are used as tax shelters.  This has become a never-ending story in some respects. Even with the recent Congressional action to curtail the abuse of some captive insurance companies using the tax election, 831(b) captive insurers have, for the second year in a row, ended up on the IRS annual Dirty Dozen list of “tax scams” this year.

Through the end of this year, parents of 831(b) captives can make up to $1.2 million in tax-deductible premium contributions to the captives each year, and such captives’ underwriting income is exempt from federal taxes.  Legislation passed last year, raises, effective in 2017, the maximum tax-deductible annual premium contribution to $2.2 million but imposes new limits on how much in 831(b) written premiums can come from any one policyholder.

In its latest notice on 831(b) captives the IRS states 831(b) transactions have “a potential for tax avoidance or evasion” and that it lacks “sufficient information to identify which 831(b) arrangements should be identified specifically as a tax avoidance transaction…”  It goes on to describe various types of transactions involving 831(b) captives that it is looking into and asks for comments to be submitted by January 30, 2017 on “how the transaction might be addressed in published guidance.”

I agree with our good friends Chaz Lavelle at Bingham Greenebaum Doll and Mike Serricchio with Marsh Captive Solutions that the notice seems to suggest that the IRS isn’t condemning all captives that take the 831(b) election as fraudulent.  As we see the growth of captives for small-to mid-sized enterprises, it behooves us all to support better regulation of captives at all levels, and especially microcaptives. To me, the 831(b) concern points to state regulators who haven’t done enough to police this activity. Perhaps all this attention will help to correct that. And it is another example where we often see a backlash, either in the press or in public policy, that have consequences potentially harming our industry as a whole.

Thank you all very much, and I look forward to hearing from you.

Rich Smith,
VCIA President

One Part James Bond, One Part Sherlock Holmes, and One Part Bono

I was reading an article on the globalization of risk just the other day, and it made me realize just how “glamorous” a risk manager is these days. Many new economic challenges are a result of the rise in societal issues around the world, and these instabilities will spill out and influence other risks, such as cyber-attacks motivated by the social unrest.  This was highlighted by John Drzik, New York-based president of global risk and specialties at Marsh, earlier this year.  With political and social unrest in many countries higher than seen in decades, captive owners need to look at how to be more resilient and mitigate risk where possible within their operations, he said. I couldn’t agree with him more.

Mr. Drzik recommends running scenarios to find changes that could be made to company resiliency plans. Vendors in your supply chain should be diversified, portfolio investments should be examined for risk in particular countries that could be affected by a food or water shortage or social unrest which could cause business disruption damaging a business or investments.

Captive uses are evolving in response to these new risks.  This is why, as a captive risk manager, you need to be a little bit James Bond to deal with international threats, a little bit Sherlock Holmes to dig deep through data to provide “elementary” analysis of whether the risk can be something captives can cover, and a little bit Bono because, well everyone should have a little bit of Bono in them!

VCIA will be in the Great White North of Minneapolis tomorrow, November 2nd, for one of our famous Road Shows, so if you are in the hood,  drop on by! Thank you all very much, and I look forward to hearing from you!

Rich Smith,
VCIA President

Climate Change–Attitude Change


Vermont has enjoyed amazing weather since roughly the beginning of this year–that is, if you are not a big fan of snow, cold and rain.  I have both enjoyed basking in this “endless summer” up north here while also been frightened about what it portends. It somewhat follows the inconsistency in the broader insurance market when it comes to dealing with climate change.

On the one hand, many international insurance and reinsurance organizations have been very vocal about climate change and the need of the insurance market to respond. Lloyd’s of London and other insurers called for collective action to address climate change earlier this year after a report from the U.K. regulator this week highlighted risks to their industry from global warming.  “An increase in temperature of more than 2 degrees could lead to a lack of affordable insurance,” Carmen Bell, policy advisor for personal insurance and general insurance at trade body Insurance Europe, told Reuters.

This very much should be in the wheelhouse of the insurance industry to lead the way, one would think. On the other hand somewhat surprisingly, most P&C insurers are not adequately prepared for climate change-related risks, according to a Ceres survey that rated insurers as minimal, beginning, developing, or leading. Only 3 percent earned the leading rating, while 83 percent received the ratings of beginning or minimal. While there remains an active debate on the cause of climate change, our industry should be focused less on that and more on how we respond to and mitigate it.

My hope is that the captive insurance industry will follow the lead of some of the insurance leaders in this area. After all, that’s what good risk managers do–assess and protect their owners from risks.

Thank you all very much, and I look forward to hearing from you.

Rich Smith
VCIA President

Brexit?? Verm-enter!

I just hosted a VCIA Members-only webinar yesterday called “Captive State of the Union” where we explored what VCIA is doing legislatively in Vermont, DC and internationally to keep the captive industry strong and thriving. I was joined by the redoubtable Dave Provost, Deputy Commissioner of Captive Insurance for the State of Vermont, and the sagacious Jim McIntyre, VCIA’s veteran DC counsel.

Toward the end of the webinar, we had a chance to discuss a few international events that may impact the captive industry, including my favorite term of the year: Brexit. Lately, much of the news has been dominated by Britain’s vote to leave the EU, and especially how it might affect the world of finance and insurance – including captives. The answer is, I have no idea.

Obviously, many UK captive domiciles, like Gibraltar and Guernsey will have to figure this out as this slow-motion train wreck unfolds. And of course, many captives and RRGs based in the US have reinsurance agreements with the likes of Lloyds. However, I like what Dave Provost suggested: Vermont would be glad to host a reinsurance marketplace here in our beautiful state. Instead of Lloyds of London it will be Lloyds of Lyndon (Lyndon, Vermont that is)!

Thank you all very much, and I look forward to hearing from you!

Rich Smith
VCIA President