Viva Las Ve-rmont!

Sure, it seems easy – especially when you are the largest and most sophisticated captive domicile in the US. But the work that Ian Davis, Dave Provost, Sandy Bigglestone and the rest of the State of Vermont team put into attracting so many new captives to license in the state should not be overlooked.Captive-Licenses-2017

What I am talking about here is the recent report that 2017 proved to be another highly successful year for Vermont’s captive insurance industry.  Vermont added 24 new captive licenses, bringing its total to 1,112 with 566 active captive insurance companies. This is almost exactly the average number of new captives licensed yearly in Vermont (roughly 25) regardless of the marketplace. There are now more than 40 states with captive laws on the book and with the current uncertainty of state self-procurement taxes that put a thumb on the scales in favor of “home states”, Vermont still excels.

The new captives were made up of 11 pure captives, 5 sponsored captives, 3 Risk Retention Groups (RRGs), 3 special purpose financial insurers, 1 branch captive and 1 industrial insured captive – as usual, a healthy mix of sizes, types and industries.  Risk Retention Groups account for three of the new licenses, bringing the active total to 90.  Vermont continues to hold a dominant market share with over 60% of all RRG premium volume being written by Vermont companies.  As David Provost, Vermont’s Deputy Commissioner of Captive Insurance, always says Vermont’s focus will always be licensing quality companies, not chasing numbers.

Don’t forget that January 24 this year is VCIA’s annual Legislative Day in Montpelier, Vermont’s capital. It’s a full day of meeting and hearing from Vermont’s political leaders on the captive industry and issues facing the State broadly. Go to www.vcia.com and register today!

Thank you and I look forward to hearing from you.

Rich Smith
VCIA President

A Nice Little Holiday Gift from Congress

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As reported by Business Insurance on December 13th, the House Financial Services Committee adopted legislation that aims to preserve the U.S. state-based system of insurance regulation and gives Congress greater oversight and transparency on international insurance standard negotiations.

As beneficiaries of the strong, state-based insurance regulatory framework, the captive insurance industry applauds the goal of this legislation. The bill was introduced in response to concerns expressed about the covered agreement signed by the United States and the European Union to address the U.S. lack of equivalency related to the bloc’s Solvency II directive for the insurance industry. Although we supported the covered agreement in terms of trying to create parity between jurisdictions, the NAIC objected to what they believe to be a lack of transparency and consultation with state regulators on the issue.

As reported in BI, the bill states that entities representing the United States may not agree to insurance-related international agreements unless they are consistent with and recognize existing federal and state law, particularly on the regulation of insurance. U.S. federal entities participating in negotiations would be required to coordinate and consult with state insurance commissioners, according to the bill.

Whether this bill gets enough immediate traction to pass in the next year remains to be seen. I think it does bode well that Congress reiterate the near supremacy in states regulating insurance (I say “near supremacy” because Congress can always change its mind!).

Thank you and I look forward to hearing from you.

Rich Smith
VCIA President

Come Hell or High Water

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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

Mr. Smith Goes to Washington

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You may have heard about Richard Smith being grilled in Congress this week over a huge data breach that exposed millions of Americans’ personal information. I just want assure you that I am not THAT Richard Smith!

I think our industry has been very focused on cyber security for some time now, both in their businesses and as an opportunity to craft a captive solution for their clients – and I have certainly blogged it to death so enough said. That still has not stopped the NAIC from proposing to adopt a Data Security Model Law this year. If you have not seen it you can download it here:

Data Security Model Law (click here to view)

And although it becomes another “thing” to deal with in our industry, there is no doubt that a cybersecurity plan is a necessary element of any good captive management plan. I give Vermont’s insurance commissioner, Mike Pieciak, and his dauntless captive team high marks for keeping the NAIC’s model act as manageable as possible.

In the meantime, this Mr. Smith will be heading to Washington this fall to meet with congressional staff and leaders on the hill about issues impacting captive insurance.  Hopefully, I will get a little warmer welcome than my namesake!

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

Alexa, manage my claims

Does emerging artificial intelligence-focused insurtech provide more opportunities for captives? That’s a question confronting our industry with the growing trend of automated data analytics in insurance.

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At the same time, Munich Re reported its US-based insurtech platform, Slice Labs, has launched its on-demand homeshare insurance product across 13 states. Slice’s insurance product is specifically designed for homeshare hosts who participate in platforms such as AirBnb or HomeAway, and covers the time period hosts rent their homes out.  Machine learning, which is a branch of artificial intelligence that gives computers pattern recognition and computational learning capabilities, is gaining momentum in the insurance industry.  Specifically, 54% of the almost 200 insurance executives surveyed said that their organization was using machine learning to support predictive analytical modelling functions. Furthermore, 70% of those who deployed the technology applied it to risk modelling, while 45% used it to develop demand models, and another 36% employed it for fraud detection.

As I am sure all of you remember in a past blog (you know, the one with the picture of me and Beyoncé – one of my faves) I took your valuable time to ramble on about this trend, focusing on a peer-to-peer insurance start-up called Lemonade. Lemonade, an artificial intelligence-focused insurtech company, more than doubled its clients in two months, according to its co-founder, from 6,000 customers at the end of March to about 14,300 by the end of May.

Having more insurance companies employ machine learning technology in their underwriting and modelling could mean more opportunity for organizations with risks that don’t fit the “emerging algorithm” to utilize captives.  Not that captive insurers and service providers aren’t using the emerging insurtech technologies as well; just that the bespoke nature of captives could further differentiate them from traditional insurance as the robots take over!

I look forward to hearing from you.

Rich Smith
VCIA President

 

 

Back to work!

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Thank you to everyone who joined us in beautiful Burlington, Vermont, a couple of weeks ago for the VCIA Annual Conference! Without a doubt, it was a terrific 2 ½ days with great programs, networking and events. With over 1000 attendees from 44 States (plus the Virgin Islands) and 9 countries, where roughly 23% were captive owners and 18% first-timers, 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 enthusiasm for the captive industry shone throughout all aspects of the event.”  The learning formats and interactivity of the event were also held in high standing.  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. In case you missed it, we hosted a webinar Wednesday on the recent Avrahami decision regarding the use of the 831(b) tax election for small captives. Chaz Lavelle, Partner at Bingham Greenebaum Doll LLP, and Dan Kusaila, Tax Partner at Crowe Horwath LLP, provided terrific analysis not only on what the opinion says, but also what it means. Avrahami is the first court case involving a captive taxed under section 831(b).   If you missed it, you can purchase a recording of the webinar through VCIA’s Captive EDU.

Other VCIA webinars on the docket include Short Duration Contracts coming up on September 14, State of the Union for Captives October 18 with Jim McIntyre and I summarizing all things legislatively current, Reinsurance Marketplace Trends in November and our annual Captive Taxation Update webinar December 14.  Notices will be sent by email once registration is open, or check our site.

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

Rich Smith
VCIA President