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

National Risk Retention Association

chicagoThe National Risk Retention Association hosted their annual conference last week in Chicago and I always enjoy going out there for it. The conference brings some of the leaders and brightest from the world of RRGs together for a few days to discuss hot topics in the industry and get “learned up”.

Executive Director Joe Deems has shaped NRRA to be a pivotal player in risk retention insurance; a place to exchange valuable and timely information regarding the RRG industry. NRRA has a long history of successful legal and regulatory representation of the interests of risk retention and purchasing group liability insurance programs, as well.

A few interesting sessions at the conference include Conducting a Cyber Liability Audit of Your RRG, obviously a hot topic for anyone in the financial services industry these days. Innovation in Risk Management and Taking a Hit – Strategies for Recovering from Bad News were also of interest. A member of DFR’s illuminati, Sandy Bigglestone, provided her outlook of the RRG industry on a panel called Raising Eyebrows: The Regulators’ Perspective on the Signs an RRG is Headed for Trouble. And yours truly participated on the panel Cultivating the Next Generation of Captive/RRG Leaders, another important issue facing captives and RRGs.

Since Vermont is home to almost half of all RRGs licensed, it was a little like old home week in the Windy City. Many of the panelists are Vermonters or have strong connections to VCIA, such as Joe Carter of United Educators, Clare Bello of VCM, Christine Brown of Vermont’s DFR, Nancy Gray of Aon, Tina Truax McCuin of TD Wealth, Anne Marie Towle of JLT Insurance Management (and VCIA Board member!), and Matt T. Gravelin of Johnson Lambert.

Thank you and I look forward to hearing from you.

Richard Smith
VCIA President

I Kind of Like the Swamp…

rich-swamp-2I am down in Washington for a couple of days meeting with various Congressional staff people about moving the Captive Clarity Bill forward, slowly but surely.

The Captive Clarity Bill is seeking to clarify (hence the name!) an issue passed in legislation a number of years ago.  Within the Dodd-Frank Act was passed the Nonadmitted and Reinsurance Reform Act (NRRA), which was intended to streamline the regulation and taxation of surplus lines insurance. However, some of the definitions in the Act are so broad that questions have been raised about its effect on captive insurance. If captive insurance is considered “nonadmitted insurance” under the NRRA, captive insureds may be required to pay a premium tax to their home state in addition to their captives paying domiciliary state premium taxes, and be partially regulated by the insured’s “home state.”

Currently, captives are taxed and regulated in the state that they are domiciled regardless of where their corporate owners’ headquarters may be located. Under NRRA, the home state could assert the right to tax the self-procured insurance premiums written within the captive entity even though the state of domicile already charges the captive a premium tax.  It would suddenly penalize many companies by double taxing them for being domiciled in a state that is not their home state.  Although the Act does not give states any additional taxing authority, the prospect of nondomiciliary states accessing additional insurance transactions to tax has increased the risk of states attempting to impose new taxes on captive insurance. On the other side of that coin, domiciliary states may be at risk of losing their ability to collect premium taxes and regulate certain aspects of captive insurance.

Ian Davis, Director of Financial Services for the State of Vermont, and I will be meeting with our Vermont contingent, Patrick Satalin with Rep. Welch (D-VT), and Erica Chabot and JP Dowd with Senator Leahy’s Office. We will also be meeting with key Congressional staffers, including John Hair with Rep. Sean Duffy (R-WI) – Chairman of the Housing and Insurance Subcommittee, Saat Altey with Senator Tim Scott (R-SC) – Member of the Senate Banking and Insurance Subcommittee, Brandon Beall, Professional Staff for Insurance, Senate Banking Committee, and Amanda Fischer, Director of the Democrat/Minority Policy for the House Financial Services Committee. Finally, I will be meeting with Richard Ifft in the Federal Insurance Office at the Treasury Department. Phew… I need a break just looking at the list!

Jim McIntyre and I will be providing a full legislative report during the VCIA Annual Conference to VCIA Members attending the  Annual Meeting, so come on by and find out more!

We look forward to seeing you in Vermont in August. Thank you all very much, and I look forward to hearing from you soon.

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