Happy Holidays and See You in 2018

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I just wanted to wish all of you Happy Holidays as we head out of 2017 and into 2018. It’s been another busy years in captives, that included a horrific hurricane season, the decision of the Avrahami case on 831(b)s, the specter of continued cyber security issues with the hacking of Equifax (among others), and the soon-to-be-passed Tax Reform bill – all of which impact our industry.

That being said, captive insurance is growing and remains a robust part of the world’s risk management sector. Vermont broke through the 1000 captive license mark and looks to add around 25 new captives before year’s end. With challenges and opportunities that lie ahead such as healthcare, drones, (more) cyber risk, and AI (artificial intelligence – get used to it), captives will show how entrepreneurial and innovative our industry can be!

Thank you all for another great year and Happy New Year!

Rich Smith
VCIA President

A Nice Little Holiday Gift from Congress

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As reported by Business Insurance on December 13th, the House Financial Services Committee adopted legislation that aims to preserve the U.S. state-based system of insurance regulation and gives Congress greater oversight and transparency on international insurance standard negotiations.

As beneficiaries of the strong, state-based insurance regulatory framework, the captive insurance industry applauds the goal of this legislation. The bill was introduced in response to concerns expressed about the covered agreement signed by the United States and the European Union to address the U.S. lack of equivalency related to the bloc’s Solvency II directive for the insurance industry. Although we supported the covered agreement in terms of trying to create parity between jurisdictions, the NAIC objected to what they believe to be a lack of transparency and consultation with state regulators on the issue.

As reported in BI, the bill states that entities representing the United States may not agree to insurance-related international agreements unless they are consistent with and recognize existing federal and state law, particularly on the regulation of insurance. U.S. federal entities participating in negotiations would be required to coordinate and consult with state insurance commissioners, according to the bill.

Whether this bill gets enough immediate traction to pass in the next year remains to be seen. I think it does bode well that Congress reiterate the near supremacy in states regulating insurance (I say “near supremacy” because Congress can always change its mind!).

Thank you and I look forward to hearing from you.

Rich Smith
VCIA President

Come Hell or High Water

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Back in July I wrote a blog about the possibility of some sort of border tax being proposed by Congress as part of a broader tax reform bill that could have a negative impact on the captive insurance industry.  Well, as I write this blog the House and Senate have passed versions of tax reform that both have an effect on our industry.

Now, here’s the deal with this bill: Congress is so desperate to pass a bill that shows they achieved something that this bill isn’t on the fast-track, it’s on a rocket with limited guidance control! So there will be a tax reform bill on the President’s desk by Christmas. Using the streamlined “budget reconciliation” process, the GOP needs only a simple majority in the Senate rather than the standard 60 votes, and because Republicans currently control 52 seats, victory seems assured provided defections are be minimized.

Its politics over policy, I am afraid. And though it seems certain that there will be a reduction in the corporate tax rate to 20%, both houses are looking for place to “pay for” these cuts in other areas, and insurance is a pretty easy target. Domestic reinsurers and specialty insurers would be the primary beneficiaries of tax reform, along with insurance brokers and standard commercial insurers, but captives with off-shore reinsurance agreements will be paying more. Relevant to the P&C insurance industry are provisions affecting net operating losses, discounted loss reserves, and, for P&C carriers with a diverse portfolio, the provisions affecting amortization of policy acquisition expenses.

Luckily for you all, VCIA will be presenting a webinar next week to try and make sense out of this chaos. On December 14th, a group of noted captive tax specialists will  also explore the recently introduced Tax Reform bill, its impact on captives, and the process it will go through to get passed by Congress.

Panelists include Daniel Kusaila and Thomas Jones, each of whom have been recognized by Captive Review as well as receiving numerous other industry awards, as well as Charles Boustany, Jr., MD, former U.S. Congressman on the influential House Ways and Means Committee and former chairman of the Subcommittee on Tax Policy.  Charles is currently a partner with Capitol Counsel LLC, a Washington law firm with expertise on taxation and insurance issues. His insight will bring great value to this session.

Click here to register today!

Thank you and I look forward to hearing from you.

Rich Smith
VCIA President