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

numbersB2019 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.

Happy New Year

hnyHard to believe it is 2020! I hope you all had a wonderful holiday season and happy New Year. I am looking forward to another great year working with all of you in our fine industry. As usual, we are off to a fast start here at VCIA, and I want to remind you of a few events to look forward to in the first half of 2020.

First up, January 22nd is VCIA’s annual Legislative Day 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. If you have a chance to join us in Montpelier, even for part of the day, please come – it’s the best opportunity for Vermont’s captive industry to put a great foot forward with our State’s leaders.

In March, VCIA will embark on its first-ever Captive Insurance Trade Mission.  The State of Vermont and VCIA will send a delegation of government, regulatory and industry representatives to Mexico to highlight Vermont’s leading captive insurance industry.  Working in collaboration with the U.S. Commercial Service, the trade and promotion arm of the U.S. Department of Commerce’s International Trade Administration, the delegation will lead captive insurance educational forums in Mexico City the week of March 23, 2020.  The goal of this trade mission is to increase awareness of Vermont as the leading U.S. domicile for captive insurance and underscore our state’s mutually beneficial trade relationship with Mexico.

On May 21st,  please join us for our annual Spring Member Mixer which will be held at Champlain College in Burlington, Vermont. This event will include a Q&A session with Dave Provost and his team from the Department of Financial Regulation, in conjunction with a VCIA Board meeting.

VCIA’s Annual Conference will be held August 10th – 13th. This exciting event is a virtual homecoming for the entire captive industry!

That’s just a smattering of events that will also include a number of our renown webinars, and other conferences which Team Vermont attends, such as RIMS, which will be held in May in Denver.  We look forward to connecting with you!

Go to www.vcia.com and register for VCIA Legislative Day today!

Thank you and I look forward to hearing from you.

Rich Smith,
VCIA President

Mixy Business

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Many thanks to all you who joined us Wednesday night for VCIA’s annual Holiday Mixer. We had around 120 of nearest and dearest friends attend at the Hilton taking time to greet and socialize with fellow VCIA members on a cold and ultimately snowy Vermont evening.

Many thanks to our sponsors of the event: our friends at Crowe right up the street, and the folks of NAMIC Insurance Solutions (NAMICO) who came all the way from Indianapolis! Tim Sullivan, Kristen Strasser, and Ted Doughman braved the “friendly” skies to join us.  It is one of my favorite nights of the year, when friends come together with no agenda except to enjoy each other’s company as we head into the holiday season.

I also want to congratulate David Guerino as SVP & Managing Director of KeyState Captive Management.  Dave was there with some of his fellow KeyState colleagues as well, Jeff Vigne and Alicia Huskes. KeyState is a relatively new VCIA member and just announced plans to establish an office in Burlington, Vermont in early 2020.

Thank you again and I look forward to hearing from you!

Rich Smith
VCIA President

 

Taxing Talk

2019-tax-panelJoin us next week As VCIA presents its annual captive taxation update! On December 12th, a group of noted captive tax specialists will inform you of the latest 2019 tax developments impacting captive insurers. Our panel will provide details on specific tax authorities and court rulings released over the past year to provide further insight into the ever-shaping landscape of captive taxation. The panel will also explore the latest changes from the U.S. Tax Reform bill enacted a couple of years ago, its impact on captives, and how best to plan for year-end.

Our panelists will be Saren Goldner, Partner at Eversheds Sutherland, Kristen Hazel, Partner at McDermott Will & Emery, and Alicia Miller, Tax Senior at Crowe.  Each of these experts are considered respective authorities of captive taxation in their various capacities, and all are members of firms who have a strong presence in the captive industry and work tirelessly for the benefit of all.

This webinar offers a great opportunity for all stakeholders to keep up with the latest tax developments in efforts to make informed decisions at the highest level of corporate governance for your captive.  You will walk away learning about recent changes from the U.S. Tax Reform bill that will affect the status of captive insurers; Washington State’s recent approach toward taxing captive entities and some results of recent court cases;  the basics of Johnson & Johnson’s successful appeal in its $55 million NJ Self Procurement Tax Refund Case; recent developments involving insurance characterization, including risk pools and alternative premium characterization; and the IRS’s continued focus on smaller captive insurance companies and understand best practices learned from the cases in this area.

Click here for more information. I hope you will be able to join us!

Rich Smith
VCIA President

It’s a Hard Market

Business concept, Young businessman pushing large stone uphill with copy space

OK, time to fess up. In a blog in February 2018, I dismissed the rumor that a hardening insurance market was on its way. As a matter of fact, I stated “Next time I get asked by a reporter whether I think a hard market is coming our way, I will give them the same answer I gave at the end of last year: hard market, schmard market” – ouch!

Well, as we are all aware, the insurance market has certainly been hardening over the last year. Even though I still believe that the broader insurance market is more stable now, with better loss control, better data, more capital, and the maturation of the captive insurance industry, it is tightening. According to the second quarter 2019 Marsh Global Insurance Market Index, commercial property rates in the U.S. increased nearly 10% in the second quarter, which is twice the level of recent quarters.

And though the hardening market is impacting several different lines, I thought the explanation as reported in Business Insurance by Bret Ahnell, Executive Vice President of Staff Operations at FM Global, on property insurance (a large area in the captive marketplace) was instructive:

1.) The commercial property insurance industry has been losing money.  There have been declining rates industry-wide for more than a decade while carriers have offered broader coverages.  At the same time the industry has been contending with increased risk as a result of global economic expansion.  In fact, the property and casualty industry has been above a 100 combined ratio in 6 of the last 9 years. Only 2013-2015 were profitable, explained by extremely low losses from natural disasters.  Yet, when big natural catastrophe losses resulted from events, including hail, hurricanes, flooding, wildfires, and monsoons, the industry again posted losses in 2017 and 2018.

2.) Bonds markets have remained lackluster.  While investment yields in the stock market have been favorable during this time, the returns in the bond markets — which most insurers primarily rely upon for investment income — have remained lackluster.  The result is the industry hasn’t been able to use their investments to offset bad underwriting results. Carriers have had to adjust rates and coverages as needed to better ensure an underwriting profit.

3.) Regulators are gaining more sway in underwriting behavior.  The role of regulators is having an impact on underwriting behavior and discipline.  More than ever the insurance industry needs to be able to demonstrate sustainable business models and profitability across each line of business.

4.) New U.S. tax laws have increased tax liability while driving down profitability. Where previously carriers could write off 35% of a loss, today, it is only 21%, which ultimately means more selectivity when placing capacity.

It all adds up to a commercial property market that requires underwriting discipline and a continued correction over time. And, in this market, those clients who understand and commit to property loss prevention and risk engineering will do better than those who don’t.  That means captive owners will most likely be adding more to their risk portfolios.

On that cheery note, I hope you all have a wonderful and safe Thanksgiving!

Rich Smith
VCIA President

CNN_SOTU_logoJoin me on November 20th for an informative and timely update on VCIA legislative activities on behalf of our members and the industry. The session is free, for VCIA Members only, and is not to be missed!

I will be joined by David Provost, Deputy Commissioner for Captive Insurance at the Vermont Department of Financial Regulation, and Jim McIntyre, VCIA’s representative in Washington DC for an overview of new and pending regulations in the state and in Washington D.C. and the NAIC.  Between these two guys, they hold enough knowledge on captive insurance to fill an old UNIVAC 1107 mainframe computer (OK, admittedly an iPhone holds tons more data, but we old mainframes have to stick together)!

Learn about VCIA’s activities on your behalf, and the status of important current issues like:

  • What’s happening in Washington, DC
  • TRIA Reauthorization
  • Cannabis Safe Harbor Act
  • IRS Letters to 831(b) Captives
  • Update to the Liability and Risk Retention Act (LRRA)
  • Activities and updates from the NAIC, including the RRG Task Force
  • Non-domiciliary state actions: Washington State, Johnson & Johnson decision
  • Vermont’s captive 2019 bill and what’s ahead for Vermont’s 2020 captive bill
  • DFR legislation creating an insurance “sandbox” to test innovative technology or insurance models.
  • Vermont Department of Financial Regulation updates

I hope you will be able to attend this Members Only event.  If you aren’t already a VCIA Member, this would be a great time to join! Click here for more information and to register.

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

Rich Smith
VCIA President