Come Together

rich-in-washington

This week a group from the Captive Association Leadership Council (CALC) coordinated a visit to Washington DC to provide an educational baseline on the captive insurance industry to key policymakers and staff.  The idea is that providing a baseline on captives with the participation of numerous state captive associations will build a foundation for future discussions when presented with potentially adverse actions in Washington or opportunities to advance the industry as a whole.

CALC is an informal coalition representing most captive association leaders in the industry. This first visit as a coordinated group included me, Dan Towle from CICA, Joe Deems from NRRA, Joe Holahan representing the Captive Insurance Council of the District of Columbia, and Julie Bordo, President of PHC Mutual Insurance Company RRG (a captive owner and VCIA Member).

We met with staff members of key committees in the House and Senate (House Financial Services and Senate Banking) in the morning before heading over to Treasury to meet with key members of the Federal Insurance Office and Tax Policy. We explained the role of captives and the importance not only to the organizations that utilize them, but to the economy overall. We discussed some of the issues regarding the bad actors misusing captives, as well as tried to dispel myths regarding the industry. We heard directly from Treasury on issues they had concerning captives, which provided us with helpful insight.

This CALC trip to Washington DC is the first of what we hope will be many, to strengthen connections with key committee staff as well as home-state Senators and Members of Congress. Our inaugural trip was a success – connections were established with key staff who we will reconnect with if and when legislative issues arise regarding captives or RRGs.

Thank you and I look forward to hearing from you!

Rich Smith
VCIA President

Tough Mudder

rich-tough-mudderBusiness Insurance recently ran a story “Extreme sports test liability protections” (Feb 17) which described the challenges extreme race organizations have with potential liability issues.

“Drowning,” “near-drowning,” “animal bites,” “permanent paralysis” and “death” are all listed in waivers for these events. Signage posted by the organizers of race Tough Mudder — a major name in the sport — famously tells participants sweating through the obstacles to “remember, you signed a death waiver.” Yikes!

According to the article, in parallel with the rising popularity of the events are a growing number of lawsuits alleging organizers are liable for injuries incurred on the courses of the events.  The article goes on to say several companies in the industry are suffering financial problems, although it is unclear whether liability issues are contributing to their troubles.

After reading the story, two things come to mind.  First, these organizations should take a page from the U.S. Hang Gliding and Paragliding Association. In 2016, the Association formed a risk retention group (RRG) domiciled in Vermont. With a risk retention group, many people, companies or organizations pool their money and insure themselves collectively. The key requirement is that they are like entities — in this case hang gliders and paragliders — but it could be extreme racing organizations just as well.

“Working with Vermont was wonderful,” Tim Herr, secretary and risk management officer for Recreation Risk Retention Group Inc., (RRRG) said. “They understand the small niche insurance market. The first meeting is always filled with trepidation, but we showed them our plans and they understood what we needed and wanted to do.”  RRRG now has 29 member groups covering the flights of more than 9,000 USHPA members, 83 USHPA chapters, and more than 30,000 hang gliding and paragliding students annually.

The second thing that comes to mind upon reading the BI story is this:  did you know that some members of Vermont’s very own Department of Financial Regulation captive staff participate in these crazy races?! Deputy Commissioner Dave Provost himself, and Director of Examinations Dan Petterson have regularly put themselves at great bodily harm in these extreme obstacle course events.  And I think Sandy Bigglestone, Director of Captives, has tried it at least once too!

So, our two takeaways today are:

  1. Vermont regulators have personal knowledge of risks associated with extreme sports, and are willing and able to assist with unique risks from organizations of all sorts; and
  2. Don’t mess with Vermont (or at least, Vermont’s DFR)!

Thank you and I look forward to hearing from you!

Rich Smith
VCIA President

Zombieland

zombie-rich

It’s a little unfortunate that months and years of good work to close the gap at the NAIC, and with others, on the misconceptions of the regulation of Risk Retention Groups can be set back in what amounts to an instant.

As many of you know, with the hard work and leadership of Sandy Bigglestone and Christine Brown of Vermont’s Department of Financial Regulation, and Sean O’Donnell of the DC Department of Insurance, Securities and Banking, there was much progress on creating a common regulatory approach to RRGs and educating non-domiciliary states to that end under the auspices of the NAIC’s RRG Task Force.

Over the past year, the Task Force has been working diligently to provide additional guidance to both state insurance regulators and industry regarding the registration process for RRGs in non-domestic states. The process started last year with a letter from the National Risk Retention Association (NRRA) citing concerns regarding fees and delays in the review of registration forms, supported by a letter from the VCIA. The discussion that followed also raised concerns from non-domiciliary states, such as incomplete registration forms or potentially non-compliant RRGs. As a result, a drafting group was formed to develop frequently asked questions (FAQ) and best practices documents, and updates to the NAIC Uniform Risk Retention Group Registration Form, which made great progress toward the goal.

Unfortunately, in response to a bill that would expand the Liability Risk Retention Act to allow certain, narrowly defined, RRGs to provide property, zombie tropes about how well RRGs are regulated rose again from the grave. The NAIC sent a letter opposing H.R. 4523, the Nonprofit Property Protection Act, and stated in the letter “RRGs have historically had a higher insolvency rate when compared to admitted insurers.”  The letter was signed by the current NAIC president-elect, Ray Farmer, Director of South Carolina Department of Insurance, among others.

As a joint response from VCIA, CICA and NRRA pointed out, this is simply untrue.  According to a study conducted by the Risk Retention Reporter, which uses data from A.M. Best for the period 1987 to 2017, RRGs had a yearly insolvency rate of 1.2% as opposed to 1.5% for the entire property-casualty and life and health marketplace.  In brief, RRGs during this 30-year period were less likely to become insolvent that traditional carriers.

It is noteworthy that the NAIC did not cite any authority for its conclusion.  And at the actual hearing for the bill this week Chlora Lindley-Myers, Director of the Missouri Department of Commerce & Insurance, repeated the claim – again with no backup data!  RRGs are subject to a different regulatory regime than traditional insurers, but that does not mean that the standard is “lower”. RRG regulation by the domiciliary state is subject to the accreditation process by the NAIC itself.

I hope this does not mean a complete move backward at the NAIC regarding RRGs. I have immense faith in Vermont’s regulators, and other allies in the industry, to keep pushing forward – and finally burying these long-discredited zombies.

To view a copy of the joint letter click here.

Thank you and I look forward to hearing from you!

Rich Smith
VCIA President

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

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

On The Road Again…

Richie-NelsonVCIA is on the road again, coming to Boston on November 14 at the Seaport Hotel & Conference Center for our “world famous” VCIA Captive Road Show, where we preach the gospel of captive insurance in cities across the U.S. (and will even be presenting in Mexico City next year!)

The VCIA Road Show is an excellent chance to learn about captive insurance and enjoy a great reception afterwards, to connect with others in the industry.

The educational session will feature representatives from two captive programs, who will share their experiences.  Tracy Hassett, SPHR, is President and CEO of Educators Health, LLC where she played a key role in the launch of edHEALTH, a unique entity, a first of its kind consortium of colleges and universities with the mission of reducing health care costs while enhancing consumer knowledge of options, plan design, disease management and wellness programs. Gail Newman, Vice President of Risk Management for Bright Horizons Family Solutions is our second captive owner panelist. Gail’s program excels in providing best-in-class family-care solutions across North America, United Kingdom, Netherlands, and India. Gail is passionate about business process improvements and creating risk mitigation strategies that not only support healthy financials and the “right” insurance program, but also keep employees and clients of the business safe. With the inception of Bright Horizon’s captive (APEX) in 2017, the business has been able to realize better flexibility and financial health for their insurance program and innovate insurance coverage strategies that are unique to the business.

Others all-stars presenting that day will be:  Michael O’Malley, managing director for Strategic Risk Solutions; Dave Provost, Vermont’s Deputy Commissioner of Captive Insurance; and Ian Davis, Director of Financial Services for the State of Vermont.

If you are in the Boston area, I hope you will be able to join us! Click here for more information and to register.

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

Rich Smith
VCIA President