Category Archives: captive bill

Is Gridlock Good for Captives?

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Not surprising news that Capitol Hill continues to be the most dysfunctional place in the United States. Even must-pass bills or bills where there is broad consensus around the priorities, such as the debt ceiling or infrastructure support, are being held hostage by more acrimonious politics than ever before. I spent three years on Capitol Hill and loved my time there. Not that it wasn’t political and sometimes rancorous, but there was a general feeling that we were all there for the greater good.

Enough gloom on the situation – the question remains is this dysfunction in any way good for the captive industry? Since insurance policy is primarily state driven, it might seem not to matter. However, as we have seen in the not too distant past, actions in Washington can have an effect on our industry, usually as collateral damage. The passage of the Nonadmitted and Reinsurance Reform Act (NRRA) is one good example. NRRA was not intended to pertain to captives, but because it was poorly drafted and tacked onto a bill barreling through Congress (Dodd-Frank) it is now interpreted that way.

The positive effect of Congressional dysfunction is that almost nothing will pass in the near term. That’s not to say that there aren’t bills of interest to our industry, such as PRIA (a government-backed pandemic reinsurance program similar to TRIA), updates to the LRRA, or the cannabis bill that creates a safe harbor for financial services to provide products where pot is legal.

My take on it is that Washington gridlock is not good for captive insurance. Risk management is increasingly important, and taking more of a center stage in broader policy discussions at the national level. So it would benefit everyone (captive owners, the industry and the country) if Congress were a place where one could work with both sides of the aisle to move a good piece of legislation forward. Presently, nothing is likely to pass – unless it is tacked on to a bill that finally gets dislodged. And that is not the best way for good policy to take place.

Two bits of news regarding captive people: First, VCIA board member Lawrence Cook has joined Somers Risk Services as director of client services, where he will be responsible for enhancing client relations and services as well as special project work, marketing support, and partner company relations. Prior to joining Somers Risk, Lawrence was the director, program management, for Sedgwick. Congratulations, Lawrence!

Second, Jay Branum resigned from his position as the director of captives in the South Carolina Department of Insurance (SCDOI). Jay joined the SCDOI in late 2013 as captive director, a newly created position, and in his time there South Carolina experienced tremendous captive insurance growth. Even though Vermont and South Carolina are competitors in the captive insurance arena, Jay has always been helpful and willing to share his many years of wisdom with me. He is truly a class act, and VCIA wishes him all the best in his new endeavors.

I look forward to seeing many of you at our Member Mixer next Wednesday, October 20th at the Hilton Burlington Lake Champlain! Register here.

Stay well, and see you soon!
Rich Smith,
VCIA President

Signed, Sealed and Delivered

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Vermont Governor Phil Scott signed a bill this past Wednesday that makes some tweaks to Vermont’s captive statutes.

Every year, without fail, VCIA works with our members and Vermont’s Department of Financial Regulation (DFR) to bring a consensus bill to the Vermont legislature that makes rational, sensible changes that allows our industry to thrive in this State.

Sure, some years there are some sexy items in the annual captive legislation, like the creation of dormant captives (slow down my heart!).  However, the changes usually look at streamlining and clarifying the law to make it both easier to navigate the rules to the game and do the business of captives.  This year was one of those years.

When starting a captive, there is a certain practical order to things, i.e., the captive needs to be incorporated before a license can be granted or needs a tax ID number before bank accounts can be opened.  The new law will bring the statute in line with modern practices and procedures. 

The act also reorders language regarding protected cells to make it easier to follow. Similarly, captive statute references the traditional insurance statutes when it comes to mergers and redomestications. With enough difference in the captive insurance merger and redomestication language, the new act creates a separate section within the captive statute.

Finally, the changes in Vermont law will make it easier for captives to merge, provided there is unanimous consent of the parties (shareholders, members, or policyholders).

There are a couple of tweaks, but like I said, there was nothing earth shattering in the new act. Just another piece of legislation advancing Vermont’s captive insurance industry.

Thank you and I look forward to seeing you soon.  

Rich Smith
VCIA President

Slippery Slope

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Just as we here in Vermont are starting to pack up our skis (not the hardcore, of course), the captive insurance industry is facing a new slippery slope.

Legislation approved March 9 by the Washington State Senate would set new requirements for captive insurance companies licensed in other domiciles but doing business in Washington State.  Under the legislation, S.B. 5315, captives licensed elsewhere and operating in Washington would be required to pay an initial registration fee of $2,500 and be assessed an annual two percent premium tax on insurance provided to their parents or affiliates for Washington risks. Captives affiliated with public institutions of higher education would be exempt from the premium tax.

Besides being poorly drafted, the bill sets a terrible precedent whereby acquiescing some regulatory oversight by the Washington State insurance commissioner on captives domiciled in other states. This is the culmination of a battle over the past few years between Washington’s Office of Insurance (OIC) and reality. For whatever reason, the OIC has not liked that companies in Washington can set up captives to better manage the risks of their organizations. The OIC seems to have turned a blind eye on the benefits of captives to these organizations, and in turn to the State of Washington, and instead sniffly says “we don’t approve”.  

For the companies and organizations headquartered in Washington, it has been frustrating I know. Finding a solution that gives some clarity to their operations as well as boundaries around taxes and potential fines forced a deal that neither helps the State of Washington, the companies doing business there, nor  the broader captive community. At some point, this law if passed could discourage the use of captives by Washington State businesses and nonprofits. All it will do is limit control and add costs. Washington could have instituted a self-procurement tax like several other states – instead, the OIC chose pride over prudence.

Thank you and I look forward to hearing from you.

Rich Smith
VCIA President

Kickin’ it Off!

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Great kickoff event for the 40th Anniversary of captive insurance in the State of Vermont this week. Each year in January, VCIA Members visit the Vermont State House for our annual Legislative Day. This special event highlights the successful working relationship between our Association and the State’s elected and appointed leaders.

This year, we switched to a virtual Legislative Day due to the pandemic and it was one of the most popular we have hosted! We started the day with a Q&A session from the leadership team at the Vermont Department of Financial Regulation’s Captive Division. They reviewed recent events and changes at DFR, as well as answered questions on what they saw on the regulatory horizon.

Midafternoon, DFR Commissioner Mike Pieciak hosted an hour-long captive industry review, highlighting 40 years of innovation and superlative regulation in Vermont. Mike also talked about how members of the Captive Division and others in DFR had taken on important roles in tackling the COVID-19 emergency in the State – the Governor drew on the expertise and competence of Mike and his department in modeling the pandemic as well as assisting in the distribution of COVID resources to Vermonters.

DFR’s Dave Provost and Sandy Bigglestone provided an overview of the captive industry in Vermont to legislators, members and guests attending, followed by Brittany Nevins, Captive Insurance Economic Development Director at Vermont’s Agency of Commerce, who gave the economic and market report. Yours truly did a quick summary of VCIA, before passing the baton to Julie Bordo, President & CEO, PCH Mutual Insurance Co. Inc. (RRG), who hit it out of the park with a presentation of her captive program and the important role Vermont has played in its success.

The final event was a zoom meeting with VCIA members and the new leaders under the gold dome. Lt. Gov. Molly Brown, Speaker of the House Jill Krowinski, and Senate President Pro Tem Becca Balint shared their valuable time with us talking about the issues and priorities they see ahead for the State of Vermont.  The enthusiasm they all brought to our meeting with our members contributed enormously to the success of the day.  Sen. Balint recounted the time as a new member of the Senate Finance Committee she reported out the captive bill on the Senate floor with a song! (Something she had to apologize to her colleagues for later 😊).

The cherry on top (literally) is that the State of Vermont provided a Lake Champlain Chocolate Thank You Gift Basket to a randomly chosen attendee of Legislative Day. The winner was our good friend Adam Dubuque of Johnson Lambert who has been in the industry for 18 years – almost half of the 40 years captives have been in business in Vermont! Yikes 😉

Thank you again to all of you who joined us this week. I look forward to hearing from you.

Rich Smith,
VCIA President

And We Are Off!

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Thanks to all of you who joined us for another successful VCIA Legislative Day this week at Vermont’s State House in bustling Montpelier! Our members, including many who came from afar, got to hear from Vermont’s new Secretary of Commerce Lindsay Kurrle, as well as Vermont’s Commissioner of Financial Regulation Mike Pieciak during our luncheon. Later in the day our members met and heard from Vermont’s Lt. Gov. David Zuckerman, speaker of the House Mitzi Johnson, and House Minority Leader Patty McCoy. Although these dignitaries represent different parties under the Gold Dome, what they do have in common is their unwavering support of the captive insurance industry in Vermont.

At our luncheon, special guest economist Jeff Carr unveiled a recently completed economic contribution study of the captive insurance industry in Vermont. Suffice it to say that this industry is a tiny powerhouse here in Vermont! Immediately following, the folks from DFR provided a Q & A session for our members on recent updates and activities at the department. We provided a live stream via Facebook for our members.

In the afternoon, we testified before the House Commerce Committee, where Vermont’s Director of Financial Services, Ian Davis, and I gave updates on VCIA and the state of the industry. New VCIA Board Member, Tracy Hassett, President of EdHealth, did a terrific job describing her organization and the reasons they formed a captive in Vermont. In Senate Finance, Ian and I repeated our testimony and Deputy Commissioner Dave Provost concluded with a review of this year’s captive bill, S-255.

The great news is that the following day, Senate Finance voted out the bill 7-0 clearing the first hurdle in the legislative process. There are several sections of the bill, including lowering the minimum capital for sponsored captives from $250,000 to $100,000. The bill also proposes to expand to sponsored cell captives what we passed last year to all captives: provide flexibility in investments by giving companies the option to follow the old rules or develop a plan for DFR approval. Finally, the bill proposes to clarify disclosure requirements for agency captives – we may have been too prescriptive in the disclosure requirement built into the statute when passed last year.

Please click here to access a copy of the bill.

Thank you again to all of you who participated, and I look forward to hearing from you!

Rich Smith
VCIA President

The Numbers Are In

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2019 proved to be another successful year for Vermont’s captive insurance industry with 22 new captive licenses added, bringing its total to 1,159 with 585 active captive insurance companies. This is roughly the average number of new captives licensed yearly in Vermont over the past 10 years or more, regardless of the marketplace, highlighting the resiliency of both the captive marketplace and Vermont as a domicile.

The new formations were made up of 14 pure captives, 4 sponsored captives, 2 Risk Retention Groups (RRGs), 1 special purpose financial insurer and 1 industrial insured captive, with an estimated Gross Written Premium of $24.8 billion.  A healthy mix of sizes, types and industries, ranging from healthcare, manufacturing and financial services to religious institutions, entertainment and nonprofits, are all represented. As David Provost, Vermont’s Deputy Commissioner of Captive Insurance, always says, Vermont’s focus will always be licensing quality companies, not chasing numbers.

Don’t forget that next week on January 22nd VCIA is hosting its annual Legislative Day in the Vermont State House in Montpelier, Vermont.  This totally unique event underscores the excellent relationship that our captive industry has with Vermont’s policymakers. Register today to join us to meet with Vermont’s legislators, captive industry peers, and hear remarks over lunch from State Economist Jeff Carr who will be presenting the recently released economic impact study.  Go to www.vcia.com and register today!

Thank you and I look forward to hearing from you.

Playing Well in the Insurtech Sandbox

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Legislation to enable insurtech experimentation and innovation in Vermont is on its way to the Governor’s desk for his signature. In the next week or so, Governor Phil Scott is expected to sign the insurance and securities bill (S-131).  Among other things, this bill creates an insurtech “sandbox” which will allow more R&D in this area with specific guidelines. It also updates Vermont’s surplus lines laws.

The regulatory sandbox in S-131 will provide the flexibility necessary to accommodate new concepts at the same speed as insurance technology develops. It does so by lowering or eliminating the hurdles facing this sector in bringing developments to market amid an insurance regulatory landscape that does not always accommodate such development. Not everyone will be able to play in the sandbox environment, as eligibility criteria limits the number of clients and a limited time period for the developers is part of the package. Overall, though, it’s a great step forward.

Earlier this year, Commissioner of Financial Regulation Mike Pieciak and Secretary of State Jim Condos signed a memorandum of understanding outlining their collaborative efforts to explore emerging blockchain technology and its use in the digital recordkeeping practices of the captive insurance industry.  They jointly issued a Request for Information (RFI) to identify vendors that may work with the State to launch a pilot program allowing new captive insurance companies to register with the Secretary of State using blockchain technology.  The pilot program will help the state identify areas where the use of blockchain technology in regulatory and other government business may increase data security and reduce costs for residents and those doing business in Vermont.  There were more than 20 submissions which the department is currently reviewing.

The support of the insurtech sector and the blockchain pilot program are great examples of Vermont’s openness to technology trials and innovations in our State, and Vermont’s awareness that the insurance industry as a whole is ripe for innovation.

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

Rich Smith
VCIA President

Lights, Camera, Act(ion)!

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bill signing blog

Governor Phil Scott signs Vermont’s updated captive bill on April 18, 2019. Behind him from left to right are Ben Gould (Paul Frank + Collins), Ian Davis (State of Vermont Department of Economic Development) and Mike Marcotte (Chair of the House Commerce Committee)

As I mentioned in my blog a couple of weeks ago, the Vermont legislature passed this year’s captive bill pretty quickly and all we were waiting for was the Governor’s signature to make it officially
an Act.

Yesterday, at the Governor’s ceremonial office in the State House, Governor Scott did just that! Surrounded by VCIA members the Governor signed this year’s captive bill into law strengthening Vermont’s captive regulation in a variety of areas. This year’s bill proposed several updates, including modifications to the captive examination schedule and improvements to the statute governing group captive investments. The enhancements included in this year’s bill highlight the state’s ability to work closely in partnership with Vermont’s Governor and state legislature to ensure its captive law remains the industry gold standard.

Along with State officials, those participating included VCIA legislative chair Ben Gould of Paul Frank + Collins, John James from Performa, Mat Robitaille and Connor Duffy from KeyBank, Steve Killoran and Rich Litchfield from Maple Capital,
Michelle Ambrose and Linda Elliott of Marsh, and Christina Kindstedt
from Advantage Insurance Management.

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

Rich Smith
VCIA President

 

Great News: VCIA’s captive bill passes… but you knew that was going to happen

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Thanks to the expert testimony of Deputy Commissioner Dave Provost, this year’s captive bill passed the House and Senate and is on its way to the Governor for his signature. Unless there is a calamity, the Governor will sign it into law within the next week.

Here is a quick outline of what it will do:

  • Allows non-profit protected cells can issue dividends to its owners.
  • Eliminates the requirement for an attorney-in-fact bond of a reciprocal RRG in most circumstances.
  • The commissioner currently can waive the three-year exam period, but with the maturity of many of Vermont’s captives, it made sense to revisit the timeframe. This section makes default exam period 5 years, but commissioner can shorten if determined to be prudent.
  • Allows any type of entity recognized by the Secretary of State to be formed as a captive.
  • Allows groups and agencies to either comply with current statutory investment requirements OR come up with an acceptable plan (which DFR will keep confidential). Section 3463a – valuation methodology – still applies.
  • Re-writes the RRG independent director section for clarity.
  • Makes NAIC statutory accounting the standard for the new affiliated reinsurance company or ARCs.  Vermont didn’t need to meet accreditation standards, but wanted to avoid a repeat of the AXXX/XXX fights.

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

VCIA Legislative Day – Cyber-up!

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phil_susmann_wall_street

As we all know, cybersecurity is one of the main issues facing society today. From data breaches that expose personal information to malware that can infect computer systems, in our growing IOT (internet of everything) world it’s the problem of the day. The insurance industry, including captives, have focused on cybersecurity for some time now. Both to provide their clients with the proper mitigation policies and to protect their own data systems, our industry continues to be in the forefront.

Who would have figured that in our small state, Vermont hosts one of the top cybersecurity institutions in the nation! Located in Northfield, Vermont (just south of our State’s capital, Montpelier) Norwich University hosts the NU Applied Research Institutes (NUARI).  NUARI was federally chartered in 2002 to address cyber incident management challenges through research, training programs and technology development and has been a global leader for more than a decade in developing cyber war gaming, distributed learning technology, distributed simulation technology, critical infrastructure exercises, and cybersecurity curriculum.  Norwich provides a truly unique program utilizing state-of-the-art forensic tools unheard of at other institutions of this size.

We are honored to have the President of NUARI, Phil Susmann, address our members at next week’s VCIA Legislative Day in Montpelier. Phil will speak at lunch in the Capital Plaza Hotel on January 23rd along with DFR Commissioner Mike Pieciak and a welcome from Lt. Governor David Zuckerman.

Legislative Day is a chance for our members to meet the State’s top political leaders and hear about the issues that are facing Vermont in the upcoming year. It’s also a great chance for the captive industry to say “thank you” for the over 30 years of support from politicians and policy leaders from all stripes: Democrats, Republicans, Progressives and Independents.

There will be meetings with legislative leaders and presentations to House and Senate committees. And don’t miss the Q&A opportunity with Dave Provost and the DFR Team after lunch! The event concludes with a fabulous evening reception where legislators, elected and appointed officials and VCIA Members mingle and exchange information about Vermont’s captive insurance industry and make plans for its continued success in 2019.

So, if you haven’t done so already, register here for a great day!

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

Rich Smith
VCIA President