It was a sizzling conference!

2018collagefinalThanks to all who joined us in Burlington, Vermont, earlier this month for another great VCIA captive insurance conference.  More than 85% of conference survey responses rated our conference the best or better than most. With over 1000 attendees from 44 States and 9 countries, where more than 25% were captive owners, our annual gathering in August has grown to be THE captive insurance forum!

The conference had great energy – people liked the fresh format changes and extra touches, and, as one attendee stated the conference is “the best congregation of the captive industry in the U.S.” while another stated it was “the perfect environment for meeting the alternative risk and captive community”.  Many thanks to our sponsors and exhibitors without whom we could not put on such an event, as well as to the hundreds of volunteers who make it happen.

Now after a little break, we are back to work again looking out for the captive industry. We have a bunch of webinars being planned for the rest of the year, including Regulatory Compliance on September 20th, Captive Benchmarking on October 17th, State of the Union for Captives on November 15th with Dave Provost, Jim McIntyre and me summarizing all things legislatively current, and our annual Captive Taxation Update webinar on December 13th so keep your eyes on our website!

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

Rich Smith
VCIA President

Hard Market, Schmard Market

chartThe siren song begins at the change of every year: based on historic losses in the year just ending, we can expect to see a hardening of the insurance market in the upcoming year. In fact, by all reports last year’s losses were high – Swiss Re’s preliminary sigma estimates for insured global losses resulting from natural and man-made disasters in 2017 are around $136 billion, well above the annual average of the previous 10 years and the third highest since sigma records began in 1970. Total economic losses soared in 2017 to $306 billion from $188 billion in 2016 primarily due to the three hurricanes—Harvey, Irma, and Maria—that hit the United States and the Caribbean, and wildfires in California.

The fact that we are seeing a “new normal” in loss rates certainly will be exacerbated by climate change – but that is a different story. To me, the story continues to be how even with last year’s near record losses, the insurance industry (which in the past would have triggered a substantive hardening of rates) has barely registered a blip.

One area we see this in is the reinsurance market. As stated in an article in Business Insurance, David Priebe, New York-based vice chairman of Guy Carpenter, said “Despite substantial catastrophe losses in 2017, the market demonstrated significant resilience with no notable capital withdrawal and moderate price increases.”

There are good reasons why the insurance marketplace remains so stable. Better loss control, better data, and more capital looking for a home have all contributed to this stability. And I would argue that the maturation of the captive insurance industry played a role by giving risk managers more options and flexibility.

Hard markets usually spark a corollary growth spurt in captive insurance formations. As prices harden, and insurance becomes more scarce, organizations form captives to fill the gap. But even without the hardening market, we continue to see growth in captive insurance. As Brady Young, president and CEO of Strategic Risk Solutions (SRS), told Captive.Com recently, he sees captives evolving in the future to be more of an offensive tool to support overall corporate strategies to serve customers and generate incremental profits. Brady also states, “captives can and will do more to reduce organizations’ overall cost of risk and squeeze out more of the inefficiencies of the traditional commercial insurance market… and in terms of specific lines of business or growth areas, captives will help solve the mismatch between the demands of companies and industries that have new risks and service models where traditional insurers struggle to provide the needed solutions.” He would know!

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 (which translates to not likely).

Speaking of Brady, come join us next Tuesday, February 6, in Atlanta where Brady and I will participate in VCIA’s world-famous Road Show outlining the advantages of captive insurance. We will be joined by Sandy Bigglestone, Director of Captive Insurance at the Vermont Department of Financial Regulation, Christy Williams, President of Green Mountain Sponsored Captive Insurance Company, Christopher Smith, President and Chief Executive Officer of MCIC Vermont, Inc. (A Reciprocal Risk Retention Group), and Ian Davis, Director of Financial Services for the State of Vermont.

Thank you and I look forward to hearing from you.

Rich Smith
VCIA President

Come Hell or High Water

captive-taxation-headshots

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

state-of-the-unionEvery year VCIA hosts a webinar for our members that provides an informative and timely update on VCIA legislative activities on behalf of our members and the industry.  We call it “Captive State of the Union” because, like the President’s address to Congress every January, this is a chance for our members to hear just what’s going on in Montpelier, Washington, and across the world.  I will be joined by Dave Provost, Deputy Commissioner for Captive Insurance at the Vermont Department of Financial Regulation, and Jim McIntyre, VCIA’s representative in Washington for an overview of new and pending regulations in the state and in Washington D.C. and the NAIC.  The webinar is for VCIA Members only and is free of charge!

This is a relaxed but informative hour where we will discuss issues like the potential impact of tax reform on captives, status of the Captive Insurers Clarification Act, the Vermont captive bill signed into law this past spring, and updates from the NAIC, including the proposed NAIC Insurance Data Security Model Law, XXX / AXXX regulations and proposal to collect expanded mid-year investment information, plus more.  So join us on October 19th from 2:00 – 3:00 pm ET and become informed!

Thank you and I look forward to hearing from you.

Rich Smith
VCIA President