The Gospel of Captives and Temple

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As I mentioned in my last blog, we were in Philadelphia last Tuesday for one of VCIA’s famous Road Shows serving up our sermon on the gospel of captives to a group of around 100 attendees. My heartfelt thanks to all the participants and our sponsors: Trion-MMA, Old Republic PMA, Kroll, and the State of Vermont.

Jeff Packard of Old Republic PMA acted as our MC, introducing the panels while providing entertaining (and educational) anecdotes of his many years in the captive industry. Our panelists were terrific as well! Kirk Watkins, Captive Practice Leader of Trion-MMA, walked through the basics of captives including types, lines and the process of setting one up. Then Ian Davis, Director of Finance, and Sandy Bigglestone, Director of Captives, provided an overview on regulation and licensing of captive insurance in the State of Vermont.

The second panel included two of Vermont’s captive insurance owners, Gary Langsdale, University Risk Officer for The Pennsylvania State University which owns Nittany Insurance Company, and Phil Leaman, COO of Resource Partners and Peace Church Risk Retention Group (A Reciprocal). Both provided excellent information from their many years of experience in operating captive insurance companies.

Gary outlined the complexity of his captive which covers 8 million sq. ft. of floor surface in 700 buildings, a 107,000-seat football stadium, 45,000 students, 16,000 faculty and staff, 1900 owned motor vehicles, two large hotel and conference centers, and, my favorite, a nuclear reactor sharing a driveway with the child care center!  Phil talked about how his captive covers Quaker, Mennonite, and Church of the Brethren facilities serving the aged and other assisted living populations.  With approximately 140 organizations and 16,843 insured units, Peace Church has gross written premiums of $55,433,689.

But most of all, we had around 30 students from Temple’s Fox School of Business studying risk management or actuarial sciences who joined us that afternoon. This extremely poised, intelligent group of young adults asked the best questions and provided all of us great hope for the future of the captive industry. My sincere thanks to Michael Zuckerman, Assistant Professor at the Fox School of Business and Management’s Dept. of Risk, Insurance and Healthcare Management, for bringing such an inspiring group of students!

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

Rich Smith
VCIA President

Baldy Smith Rides Again!

baldy2Another successful VCIA Legislative Day this week at Vermont’s State House in bustling Montpelier. Our members, including many who came in from afar, got to hear from Vermont’s Lt. Governor, David Zuckerman, as well as Vermont’s Commissioner of Financial Regulation Mike Pieciak at our luncheon, and then later in the day from the Speaker of the House, Mitzi Johnson, the President Pro Tempore of the Senate, Tim Ashe, and finally from House Minority Leader Patty McCoy. Even though they 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 lunch we heard from Phil Susmann, President of Norwich University which hosts the NU Applied Research Institutes (NUARI). Just a few miles south of Montpelier, NUARI serves the national public interest through the study of critical national issues and the development of related educational and training programs. Phil and his NUARI colleagues have been instrumental in helping U.S. banks and financial firms test and harden their resiliency against major cyber events.  NUARI’s simulation tools enable hundreds of players across the country—from broker-dealers, clearing firms, and stock exchanges to U.S. banks, regulators, and law enforcement agencies—to test themselves against lifelike simulated cyberattacks. The exercise has become the largest single-day event of its kind for the industry.

VCIA testified before House Commerce and Senate Finance in the afternoon. VCIA board member Heather McClure knocked it out of the park with her testimony connecting work of the Vermont legislature in support of captive insurance with patient lives at Oklahoma University Medical Center, where their APIC captive supports advances in patient care. Members of the two committees were visibly moved by the impact of her testimony!

Finally, for the first time we held our reception for legislators in the venerable Cedar Creek Room at the State House. And this is where the story of Baldy Smith comes in, for in the Cedar Creek Room hangs a recently acquired painting of the Civil War general. VCIA’s Diane Leach wondered if Baldy is an ancestor of mine, and although the likeness is uncanny, as far as I know Baldy is from a different branch of the Right Honorable Smith Family.

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

VCIA Legislative Day – Cyber-up!

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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

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