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

Sometimes it Works!


There are too many horror stories about dealing with government bureaucracies, but here is a “shout out” to the State of Virginia as well as an important lesson to always keep trying.

VCIA and NRRA wrote letters regarding the proposed changes to the Virginia Fair Claims Act. The Act threatened to effectively eliminate any ability to write coverage on a “claims-made and reported” policy form and would have negatively impacted RRGs doing business in the state. Our letters addressed the fact that the language of the proposal could have been interpreted to include a requirement that all insurers must demonstrate prejudice in order to deny coverage based on the insured’s failure to comply with time-limited policy notice provisions.

Somewhat surprisingly, the letters generated a personal call to me from the Virginia State Corporation Commission the following day, and we were invited to work with them to fix the issue.  Drawing on the expertise of VCIA members Joe Holahan, Jon Harkavy, Kathy Davis and Skip Myers, we suggested a slight change to the proposal that satisfied the state’s needs while protecting RRGs. It’s heartening to me when a state responds quickly and openly to comments, and it’s a good reminder on just how vigilant we need to be!

I look forward to hearing from you.

Rich Smith
VCIA President

A Big Shout Out!


Left to right: VCIA President Rich Smith, Governor Phil Scott, VCIA members

As I wrote about in last week’s blog, VCIA hosted our annual Member’s Legislative Day in Vermont’s state capital, Montpelier, yesterday and it was a big success!

Our members, including many who came in from afar, got to hear from Vermont’s new Governor, Phil Scott, at our luncheon, and then later in the day from the new Speaker of the House, Mitzi Johnson, the new President of the Senate, Tim Ashe, and finally from the new Lt. Governor, David Zuckerman. The interesting thing to me is we have a group of state leaders with a wide variety of backgrounds:

  • a Republican Governor who was a construction company owner and stock car racer;
  • a Progressive Lt. Governor who is an organic vegetable farmer;
  • a Democrat/Progressive Senate President who is a non-profit housing developer;
  • and a Democrat Speaker who also does non-profit work and works on a vegetable farm (go figure).

What they do have in common besides their unwavering support of the captive insurance industry in Vermont, is their willingness to work with each other across party lines to do what’s best for our small state – nice model for the rest of the country, don’t you think?

Besides the meetings with the State’s policy leaders, VCIA testified before House Commerce and Senate Finance on the captive bill that was introduced last week and to provide an overview of VCIA and the captive industry. Joining me was VCIA’s board vice chair, Jan Klodowski, who is vice president for Agri-Services Agency, LLC, a subsidiary of Dairy Farmers of America. Jan is responsible for developing and administering their successful Captive/Alternative Risk Financing Programs and manages Agrisurance Inc. which is a Group Captive specializing in the agricultural industry.  Jan did a great job of taking the vague concept of captive insurance and making it relatable by connecting it with the protection of farmers across Vermont and most of the US.

And lastly, a huge shout out to Dave Provost, Len Crouse and Ed Meehan’s family (Ed was given the award posthumously) All three were recently installed as part of the first inductees into Captive Review’s newly formed Captive Hall of Fame.  The Vermont legislature did a surprise proclamation honoring all three in the House chamber yesterday. It was truly terrific to see a standing ovation in the Vermont House of Representatives for Len and Dave who were in the gallery. Congratulations!

For a copy of the captive bill, please go to:

Photos will be posted on the VCIA site early next week!

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

Rich Smith
VCIA President

It’s a Golden Dome Day

vermont_state_house-webEvery January VCIA hosts our annual Legislative Day in Montpelier, Vermont, the coolest state capital in the country. It’s 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.

This special event, for VCIA Members only, includes the VCIA Quarterly Board Meeting, lunch with the Vermont Governor-elect Phil Scott and special guest speaker Chris Graff, 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 2017.

So, if you haven’t done so already, register here for a great day:

Click here to Register for 2017 Legislative Day!

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

Rich Smith
VCIA President