Happy New Year!

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OK, that was weird…. 2019 is here and 2018 seems like a strange dream. 2018 was one of the most “interesting” years in my brief (well, not so brief anymore) and wondrous life. That being said, we have a lot on our plates this year and I am looking forward to working with you to further advance the captive insurance canon!

2018 proved to be another highly successful year for Vermont’s captive insurance industry with 25 new captive licenses added, bringing its total to 1,137 with 558 active captive insurance companies. Over the past ten years or more, the average number of new captives licensed yearly in Vermont has been roughly 25, regardless of the marketplace. This steady figure highlights the resiliency of both the captive marketplace and Vermont as a domicile.

The new captives were made up of 12 pure captives, 3 sponsored captives, 4 Risk Retention Groups (RRGs), 2 special purpose financial insurers, 1 branch captive and 2 industrial insured captives. As usual, a healthy mix of sizes, types and industries, ranging from healthcare, manufacturing and financial services to religious institutions, entertainment and nonprofits. 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 January 23rd this year is VCIA’s annual Legislative Day at the State House in Montpelier, Vermont’s capital. It’s a full day of meeting and hearing from Vermont’s political leaders on the captive industry and issues facing the State broadly. Go to www.vcia.com and register today!

Thank you and I look forward to hearing from you.

Happy Holidays and See You in 2019

state houseSeason’s Greetings and Happy Holidays to all of the VCIA family! As we wind down another year here in Vermont and the captive insurance industry, I just want to take a little space to reflect on some of the happenings over the year.

Vermont is set to add another 20+ captives to its stable of over 1000 licenses by year’s end, notwithstanding the competition, due in large part to Dave Provost, Sandy Bigglestone and the whole team at DFR’s continued steadfast regulation, Ian Davis’ doggedness in pursuing captive leads, and the captive service providers who continue to recognize Vermont as the premier captive insurance domicile! Overall VCIA membership has increased 3% this year with 448 members thanks to Janice Valgoi and her steady efforts in connecting with new prospects.

I also want to say “thank you” to VCIA’s Board of Directors for all their support and guidance over the past year to the association. I want to especially thank Jan Klodowski for her contribution as board chair starting in October of 2017, and welcome Wilda Seymour as our new chair as of this past October. Wilda has already played a significant role on the board and I look forward to continuing our mission under her leadership. And on behalf of the staff, I would also like to welcome Derick White of SRS, Lawrence Cook of Yok Alternative Risk Solutions, Stephanie Mapes of Paul Frank + Collins, and Andrew Baillie of AES Global Insurance Company as our newest board members. 

We continue our focus on legislative and regulatory issues on behalf of our members. Many thanks to Jim McIntyre in DC and Jamie Feehan in Vermont for their wonderful service to VCIA.   And my great thanks to the VCIA staff! Without their hard work, smarts and enthusiasm, we would not be able to accomplish any of the wonderful things we do for our members.  Thank you to Diane Leach, Elizabeth Halpern, Peggy Companion, Janice Valgoi, Dave Rapuano and Megan Precourt – you are all terrific!

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

Washington State News

Rubber stamp "TAX"You have probably already heard of the recent pronouncement by the Office of the Insurance Commissioner in Washington State “allowing captive insurance companies that have unlawfully insured any risk in Washington State in the past 15 years to pay a substantially reduced fine and premium tax penalty for self-reporting the activity.”

The fact that the Washington State believes they can basically outlaw captive insurance with a press release is disturbing at best. It contradicts established federal law on insurance and creates a direct threat to the industry for those organizations that have risks in the state covered with a captive.  In the original legal filing by the K&L Gates law firm on the Microsoft case, they laid out the comprehensive argument that (1) the Office of the Insurance Commissioner (OIC) does not have the authority to regulate self-insurance; (2) the captive was not in the business of making contracts of insurance and therefore excluded from the definition of “insurer”; (3) the captive is outside the scope of the OIC’s authority under the federal McCarran-Ferguson Act litigated under Todd Shipyards; and (4) the OIC was outside its bounds to try and tax premiums related to risks outside the State of Washington.

VCIA is working with CICA and our other captive insurance partners on a cohesive response to the bulletin. In the meantime, I would advise captives with Washington State presence to check with their captive advisors on the issue.  We strongly urge you to give it some time before deciding to comply with the release.

I look forwarded to hearing from you!

Buckle Up – Turbulence Ahead

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Unlike 2016 when all the polls were wrong, the 2018 midterms turned out mostly as predicted—the House of Representatives flipped to Democratic control, and the Senate remained in Republican hands, with the Republicans likely expanding their majority. Though it is too soon to tell exactly what the divided Congress will mean on every issue and for every committee, with the help of VCIA’s Washington advisors, Capitol Counsel, here are some thoughts on how this all impacts the captive insurance industry.

November was dominated by party leadership elections and policy negotiations behind closed doors on outstanding issues. The most pressing order of business for the lame duck is appropriations. The Continuing Resolution (CR) funding many government functions is set to expire on December 7. After leadership elections, negotiations on government funding should continue; however, these negotiations will be contentious since President Trump has said he will not sign an appropriations bill without funding for “the wall,” and Democrats have adamantly opposed significant wall funding. Several authorizations are set to expire during the lame duck session and require action from Congress. Given the flip of House control, clean, short-term extensions may be the most likely path as the new House Democratic majority may choose to fight on more favorable ground next year.

With the leadership elections in November, and after some handwringing, Democratic Leader Nancy Pelosi (D-CA) retained her position and looks set to take the gavel as Speaker in January. In the Senate, though the Republicans retain the majority, Sen. Elizabeth Warren (D-MA) will likely remain on the Banking Committee and will remain a voice on the left on all issues financial services. Though they may not be able to pass any bills on these issues in a Republican-controlled House, we expect their messages to be echoed by future-Chair of the Financial Services Committee Rep. Maxine Waters (D-CA) in the House, meaning a continued spotlight on these issues.

Although Rep. Waters does not have a stated position on the captive insurance industry one way or the other, it is most likely she will defer to the NAIC on most issues that impact insurance.  She is the polar opposite of the current Chairman, Rep. Jeb Hensarling (R-TX). She is active on financial consumer issues and has been highly critical of the Trump administration for rolling back consumer protection, however, she is also seen as a dealmaker, and so it is unclear if she will govern the committee to the left, or if she will moderate and move to the center as Chairman.

There are a number of insurance-related issues that may see action next Congress.  The captive insurance industry is hopeful that Congress will ultimately pass the Captive Insurers Clarification Act, originally introduced by Senator Patrick Leahy (D-VT) and Senator Lindsay Graham (R-SC) to amend the Nonadmitted and Reinsurance Reform Act (NRRA), which was intended to streamline the regulation and taxation of surplus lines insurance. Some of the definitions in the Act are so broad that questions have been raised about its effect on captive insurance. If captive insurance is considered “nonadmitted insurance” under the NRRA, captive insureds may be required to pay a premium tax to their home state in addition to their captives paying domiciliary state premium taxes, and be partially regulated by, the insured’s “home state.”

As Congress comes back to town, it is clear that there will be significant action in both the lame duck and in the next Congress on many areas of importance to the captive insurance industry. Even with divided government, there are issues that must be addressed such as government funding and expiring authorizations, and there are areas where there could be bipartisan agreement.  So, while much has changed as a result of the election, the work of Congress and the administration will continue. As we have learned over the past two years, Washington, D.C. is full of surprises. There will likely be issues that arise that we could not predict, and how President Trump positions himself and the administration in the next two years will be important. If the President chooses to work with House Democrats on areas of interest, following the populist tone he has sometimes taken, we could see more compromise and agreement than expected – let’s hope so.

I look forward to hearing from you!

Rich Smith
VCIA President

The Great Wall and Beyond

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As I mentioned in my last blog, I traveled to China right before the Thanksgiving holiday to speak before the 2018 Jing-Jin-Ji International Insurance Forum in Tianjin. My presentation focused on the introduction of Vermont’s captive market, development and supervision. I also participated on a panel that discussed the captive rules in Asia, U.S. and Europe, best practice and the latest innovation, with insurance supervisors from Hong Kong, Singapore and Guernsey as well.  I focused on how Vermont regulators create a “partnership” with the captive insurance companies while keeping a strong regulatory hand on the tiller. I emphasized the support from Vermont’s political leadership as well. This message was well received by my Chinese captive insurance colleagues.

IMG_1613It was a great trip, especially to see and hear how the China captive market is emerging. As I mentioned last time, there is a relatively small number of captives in China right now – and mostly held by state-owned enterprises (SOEs) like COSCO shipping, Sinopec and China Railway. However, there is a growing interest in captive insurance for private enterprises and other SOEs looking to better manage their risk.

The Chinese captive industry is very limited in scope right now. Like most regulators when presented with a new-fangled way of doing business, the China Banking and Insurance Regulatory Commission is taking a go-slow approach to captive insurance. The industry in China is looking to pick up steam and get interested parties from privately owned businesses to consider captives. They are also interested in helping move Chinese regulators to broaden the limits on captives currently in place.  And while it may be a long-shot to get a Chinese captive to domicile in Vermont, the fact that they are looking at VCIA as a place to learn illustrates the continued leadership of Vermont in the growing worldwide industry.  I look forward to continuing this dialogue and seeing how the Chinese captive industry evolves.

IMG_1614I want to thank in particular my colleague Geoffrey Cao, President of the Chinese Captive Insurance Association, who invited me over and played gracious host while I was in China. And a HUGE thank you to Christina Kindstedt, Senior Vice President of Advantage Insurance Management (USA), who provided a go-between with me and my Chinese counterparts, as well as helping with my trip every step of the way.  Thank you both so much!

I look forward to hearing from you!

Rich Smith
VCIA President

Time’s a Tickin’

 

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Hey, you! Yes, you! If you haven’t registered for the World’s Best Captive Conference™ yet, it’s time to get to it!  The Early Bird Rates for VCIA’s Annual Captive Conference expire this Saturday, June 30 and we don’t want you to miss out on the savings.

Top 10 Reasons to Come to VCIA!   Register Now!

  1. The VCIA conference is a great source forcaptive career development and networking; earn CPE / CLE / ICCIE credit
  2. We offer sessions with focus areas for those new to captive insurance, those in accounting / finance, operations, and risk management. Professional development sessions are offered as well. Sessions are interactive and fun.
  3. Nearly 100 companies exhibit at the conference, featuring the newest industry product and service developments.
  4. The event will have two excellent keynote speakersJack Uldrich is a renowned Global Futurist and award winning author; he will speak on trends transforming tomorrow. Joel Cohen is an Emmy award winning writer and producer for “The Simpsons.”  He is a hilarious speaker and will discuss the Simpsons, creative process, group dynamics & innovation.
  5. Risk management tour for captive owners. Captive owners are welcome on a special outing to tour Green Mountain Power, Vermont’s largest utility, and hear from their Risk Managers.
  6. Panelists who are captive owners from some of the most prestigious organizations in the world teach at VCIA. All the industry’s key players will be at the VCIA Conference!
  7. For attendees guests or spouse, there is a fun Vermont outing available.
  8. Global collaborationmake connections with professionals in all areas of captive insurance!
  9. VCIA is great for those new to the industry, or long-time participants. Educational offerings for all levels.
  10. VCIA is a great opportunity to relax, learn and have fun with industry peers!

So get on it! We look forward to seeing you in Vermont in August.
Thank you all very much!

Rich Smith
VCIA President

Actuaries and Hang-gliding!

Senior businessman laughing at office meeting

Two of my favorite jokes about actuaries are:

  1. An actuary, an underwriter, and an insurance salesperson are riding in a car. The salesperson has his foot on the gas, the underwriter has his foot on the brake, and the actuary is looking out the back window telling them where to go; and
  2. Two actuaries are duck hunting. They see a duck in the air and they both shoot. The first actuary’s shot is 20 feet wide to the left. The second actuary’s shot is 20 feet wide to the right. The actuaries give each other high fives, because on average they shot it.

Funny? Well, a little bit any way. Actuaries kind of get a raw deal as being so geeky and numbers orientated that they have trouble fitting into polite company. But I don’t find that true, for the most part.  I did have an actuary friend of mine tell me in all seriousness that he dreams in numbers – really!

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Here’s where the hang-gliding comes in: we have a number of the best actuaries in the captive business speaking at our upcoming annual conference with the RRG risk management officer for the US Hang Gliding and Paragliding Association. It’s shaping up to be one of our most popular conference sessions and is sure to be fascinating.

Recreation Risk Retention Group (RRRG) was created in 2016 to insure the unique risks faced by the hang gliding and paragliding industry. Tim Herr has over 30 years experience as a transactional and trial attorney in both state and federal courts and has represented the United States Hang Gliding and Paragliding Association for almost 30 years.

Joining Tim at our session entitled Innovative Spotlight: Financing Unique Risk will be Bob Gagliardi, head of AIG’s captive management and US Fronting operations, and Rob Walling, Principal and Consulting Actuary with Pinnacle Actuarial Resources, Inc. Behind the scene we have Mike Meehan from Milliman and Aaron Hildebrandt from Pinnacle providing their guidance and actuarial expertise.

This session explores the process RRRG went through to add unique risks to their program and will include details of the expected and unexpected obstacles encountered in adding the unique coverage, and how the obstacles were overcome.   And here is the kicker that should grab your attention: actuarial considerations will be covered! So come and join us, learn something, and laugh a little…

OK, last joke: How much is two plus two? A marketing VP will say “22”. An accountant will say “4.00”. A mathematician will say “I can demonstrate it equals 4 with the following proof … ” An actuary will ask “What do you want it to equal?”

Thank you and I look forward to seeing you August 7 – 9!

Rich Smith
VCIA President