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

Good NRRA; Bad NRRA

AAEAAQAAAAAAAAzPAAAAJDNkYzk4YzczLTZlYzYtNDM3NS05ODUzLTdmNDVjNDM3MDc3NgI just returned from the annual NRRA conference in Chicago last night. I know, NRRA conference? I talk a lot about fixing NRRA in Washington (maybe incessantly) but this the “good NRRA” I am talking about: The National Risk Retention Association; not the Nonadmitted and Reinsurance Reform Act.

Since Vermont is home to almost half of all RRGs licensed, it is a little like old home week in the Windy City. Many of the panelists are Vermonters or have strong connections to VCIA, such as Dan Labrie, Clare Bello, Stephanie Mapes, Michael Bemi, Nancy Gray, Tina Truex McCuin and Tim Padovese. Yours truly moderated a panel of professors and students from two risk management programs in Chicago for a very interesting view on what the industry needs to do to attract (and hold) the next generation of RRG leaders. Of course, DFR luminaries Dave Provost and Sandy Bigglestone were on two different panels providing their sought-out thoughts and wisdom on a number of issues affecting the RRG world.

Congratulations to Michael Bemi who was awarded the Karen Cutts Visionary award. This award is named for Karen who was an inspirational leader and advocate for the risk retention industry and the founder of the Risk Retention Reporter. Michael recently retired as President and CEO of the National Catholic Risk Retention Group and truly lives up to the accolades of the award. Even though retired, the good news for all of us at VCIA is that he will be joining us next year at our conference as a recently minted Honorary Member of the association!

Thank you and I look forward to hearing from you.

Rich Smith
VCIA President

Border Patrol

taxes__illustrationWith Republican control of the Executive and Congressional branches of government enactment of tax reform in 2017 is highly possible.  Various proposals are being considered during the 2017 Congressional session and insurers have a lot at stake as Congress considers comprehensive tax reform.   Such legislation aims to lower individual and corporate tax rates, eliminate or limit most tax deductions, credits and exclusions, and dramatically restructure how the US taxes earnings of U.S. companies that sell goods and services outside the US.

Probably the biggest issue right now is a border adjustment tax proposed by Speaker Ryan. Taxes would apply based on the destination of where goods and services are consumed, rather than where they are produced or where the business has its headquarters.   This tax would make it virtually impossible for US insurers to buy global reinsurance, which they commonly use to spread risk and keep insurance rates affordable. It is still uncertain whether financial services transactions will be taxable if this proceeds, but the impact to reinsurance costs are estimated to be in the billions. In most other countries that have a similar value-added tax, or VAT, financial services transactions because the actual “destination” of such cash flows is difficult to discern.

Under current tax law, US insurers can write off the costs of international reinsurance just like any other cost of doing business, helping them to keep policies affordable. They cede about 20 percent of direct written premiums to reinsurers annually.  If insurers are not able to buy reinsurance to spread their risk, all the risk would be concentrated in the US rather than spread globally. This would make the insurance market less competitive, and result in higher premiums. The Brattle Group estimated that the impact of the tax is anywhere from $8B to $34B – a large range due to the fact that there is limited information on the proposal as of yet.

A border-adjustment tax is one of the ideas that has been floated in Washington as part of a major tax reform effort expected this year. To date, specific legislative proposals have not yet been put forward by Congress or the White House.  VCIA is working with the same coalition that opposes the Neal Bill on this issue to request a similar exemption.

Whatever road Washington takes on tax reform, it must act carefully and avoid the unintended consequences of a proposal like a border-adjustment tax.

I look forward to hearing from you.

Rich Smith
VCIA President

You’re Getting Warmer

Brache, James 2017 photo

Jamie Brache, 2017 VCIA Conference General Session Industry Keynote 

Some of you might have heard recently that a giant iceberg about the size of the State of Delaware (or twice the size of Luxembourg to our more Eurocentric friends) has broken off an ice shelf on the Antarctic Peninsula and is now adrift in the Weddell Sea.

At 5,800 sq km the new iceberg, expected to be dubbed A68, is half as big as the record-holding iceberg B-15 which split off from the Ross Ice Shelf in the year 2000, but it is nonetheless believed to be among the 10 largest icebergs ever recorded.  According to experts, this event will not itself result in sea level rises.  As one cool scientist described it “it’s like your ice cube in your gin and tonic – it is already floating and if it melts it doesn’t change the volume of water in the glass by very much at all.”

That being said, it is a reminder that climate change is upon us, whether you believe it is a natural occurrence, anthropocentric, or a little bit of both.  While climate change is accepted to have played a role in the wholesale disintegration of the Antarctic ice shelves, there is no evidence that the calving of this giant iceberg is linked to such processes.  However, climate change could have made the situation more likely, according to scientists.

The insurance industry is starting to play a role (indeed, must play a role) in mitigation strategies and resiliency when it comes to climate change. At the VCIA Annual Conference this August, Jamie Brache, Deputy Managing Director of Credit & Political Risk at Zurich North America, will provide his thoughts on the impact of climate change on the broader insurance marketplace and, drawing on his background, discuss some of the potential implications of climate change on risk management and the global political risk environment.  I hope I will see you there!

I look forward to hearing from you.

Rich Smith
VCIA President

 

Risky Business

rich-smith-risky-business

There have been a number of articles in the last year that have chronicled and validated the growing influence of risk management in the higher echelons of corporations and non-profits across the globe, a trend that will only continue to grow.

A report at the end of last year in Business Insurance showed that the role of the risk manager exerts greater influence across their organizations. According to the Ace study, 71% of risk managers in Europe believe their influence is greater now than it was three years ago, while 21% of that total believe their influence has risen “significantly.” This makes sense when you look at the results as reported in another Business Insurance report. Citing the annual Aon Risk Maturity Index, BI described a strong statistical correlation between progressive risk management practices and reductions in stock price volatility. The report says that the correlation “further validates the findings that advanced risk management practices are one of the factors that smooth our volatility in an organization’s stock price.” It continued on to say that “organizations with more advanced risk practices are more likely to have various and dedicated risk functions collaborate in executive risk-based processes through a defined, jointly executed risk assessment process.” The report also notes that organizations that demonstrated the best understanding of risk formally shared risk assessment results across the organization.

This implies a great trend for the captive industry: As organizations get more risk savvy and bring risk management closer to the top leadership in an organization, the option to start a captive seems like a clear choice. We already know that the understanding of an organizations risk profile is a key ingredient to a successful captive program. Once an organization “owns” its risks, it will be better able to mitigate them and that has a direct impact on the bottom line – whether you are a Fortune 500 company or regional non-profit hospital. As usual, the captive insurance industry is waiting and ready to serve!

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

Rich Smith
VCIA President

Woodpiles

rich-lumberjackIt’s 60 degrees here in Vermont today, not our usual weather by a longshot. I worked from home yesterday and was staring out at my woodpile sitting forlornly. Vermonters have a saying about wood stoves: it heats you twice – once when you stack it and once when you burn it (and for REAL Vermonters it’s four times – cutting, splitting, stacking, burning).

OK, I know what you are saying, how is he going to wrap this into a blog on captive insurance! Hopefully you know by now, I can get inspiration for captives from almost anywhere. Well, here it goes…

Captives are like woodpiles because they provide more than one benefit. Obviously, they are a risk financing mechanism that allows an organization to efficiently manage their risk through claims control, program design, access to reinsurance, manuscript policies, etc. But like a woodpile in winter it can “warm you twice” with other benefits including the opportunity to take advantage of favorable tax treatment and the ability to create a profit center with policies like extended warranties or premiums received from a controlled unaffiliated party, where a third party pays the premium. The third party could be an independent contractor, tenant, supplier or customer.

And just like the site of my woodpile gives me comfort as the snow begins to fall, a captive will give peace of mind to those who take the time and effort to build one. Maybe that’s why captives work so well in Vermont!

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

Rich Smith
VCIA President

Change the Story

cts-headerYou might remember that earlier this year I did a blog on women in leadership roles in the insurance industry (or the lack there of). I kind of smugly talked about how proud I was of the captive industry and specifically VCIA, in the number of women in leadership roles. And though I am still proud of the efforts in our niche, I was reminded that there is still a long way to go and we, males that is, can’t take these efforts for granted.

I was invited to an event last night that brought together male business and community leaders in Burlington, Vermont who acknowledge that gender equality means a stronger economy.  And although I continue to see extremely talented young women join the ranks of captive insurance, much of the responsibility for effecting meaningful progress toward greater equality between male and female professionals within a corporate culture will fall to the most senior executives.

One startling statistic from the organization Change the Story Vermont was that on our current trajectory, with all the advancements we have made toward gender equality, the gender gap is projected to disappear in Vermont in the year 2048 – that’s 32 years people!

With that in mind, here are a couple of things we can start to do:

  • Encourage women to apply for jobs for which you think they’re qualified but they’re likely to dismiss as beyond their experience.
  • Reach out to younger colleagues who are beginning their careers. Ask them questions about what led them to your field, what they like about their work, and where they’d like to be in 10 years.
  • Give women meaningful opportunities to lead and have a voice in decision-making by inviting them to serve on advisory committees and boards of directors.
  • Invite 1-2 young women to attend a business or social event with you; expose them to new connections and widen their professional circles. Share your own stories – successes, pitfalls, and unanticipated discoveries – with those around you; they can inspire, provide perspective, and encourage persistence.
  • Be an ambassador for inclusion – reach out to a new person in your workplace and help her settle in. When you see people excluded at work or at after-work gatherings, look for ways to change it up.

Check out other ideas and statistics at www.changethestoryvt.org or a similar organization in your domicile. Let’s make it work!

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

Rich Smith
VCIA President