IRS and 831(b)s… Here we go again!

rich-groundhogThis past Tuesday, the Internal Revenue Service called for more information on microcaptives, as it seeks to determine whether the companies are used as tax shelters.  This has become a never-ending story in some respects. Even with the recent Congressional action to curtail the abuse of some captive insurance companies using the tax election, 831(b) captive insurers have, for the second year in a row, ended up on the IRS annual Dirty Dozen list of “tax scams” this year.

Through the end of this year, parents of 831(b) captives can make up to $1.2 million in tax-deductible premium contributions to the captives each year, and such captives’ underwriting income is exempt from federal taxes.  Legislation passed last year, raises, effective in 2017, the maximum tax-deductible annual premium contribution to $2.2 million but imposes new limits on how much in 831(b) written premiums can come from any one policyholder.

In its latest notice on 831(b) captives the IRS states 831(b) transactions have “a potential for tax avoidance or evasion” and that it lacks “sufficient information to identify which 831(b) arrangements should be identified specifically as a tax avoidance transaction…”  It goes on to describe various types of transactions involving 831(b) captives that it is looking into and asks for comments to be submitted by January 30, 2017 on “how the transaction might be addressed in published guidance.”

I agree with our good friends Chaz Lavelle at Bingham Greenebaum Doll and Mike Serricchio with Marsh Captive Solutions that the notice seems to suggest that the IRS isn’t condemning all captives that take the 831(b) election as fraudulent.  As we see the growth of captives for small-to mid-sized enterprises, it behooves us all to support better regulation of captives at all levels, and especially microcaptives. To me, the 831(b) concern points to state regulators who haven’t done enough to police this activity. Perhaps all this attention will help to correct that. And it is another example where we often see a backlash, either in the press or in public policy, that have consequences potentially harming our industry as a whole.

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

Rich Smith,
VCIA President

Brexit?? Verm-enter!

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I just hosted a VCIA Members-only webinar yesterday called “Captive State of the Union” where we explored what VCIA is doing legislatively in Vermont, DC and internationally to keep the captive industry strong and thriving. I was joined by the redoubtable Dave Provost, Deputy Commissioner of Captive Insurance for the State of Vermont, and the sagacious Jim McIntyre, VCIA’s veteran DC counsel.

Toward the end of the webinar, we had a chance to discuss a few international events that may impact the captive industry, including my favorite term of the year: Brexit. Lately, much of the news has been dominated by Britain’s vote to leave the EU, and especially how it might affect the world of finance and insurance – including captives. The answer is, I have no idea.

Obviously, many UK captive domiciles, like Gibraltar and Guernsey will have to figure this out as this slow-motion train wreck unfolds. And of course, many captives and RRGs based in the US have reinsurance agreements with the likes of Lloyds. However, I like what Dave Provost suggested: Vermont would be glad to host a reinsurance marketplace here in our beautiful state. Instead of Lloyds of London it will be Lloyds of Lyndon (Lyndon, Vermont that is)!

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

Rich Smith
VCIA President

Captive Nation

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I hope you can all join me next Thursday for my version of the Colbert Report, when I’ll have a chance to tell VCIA Members what VCIA is doing legislatively in Vermont, DC and internationally to keep the captive industry strong and thriving. I’ll be joined by Deputy Commissioner Dave Provost and VCIA’S DC counsel, Jim McIntyre, to inform our members on what’s happening at the state, federal and international level  with legislation and regulations potentially impacting captives.

We are calling it “Captive State of the Union” and it’s not too late to register to attend! The webinar will be held  October 13, from 2-3 p.m. EST, and will address  VCIA’s activities on your behalf, and the status of important current issues like:

  • The Captive Insurers Clarification Act of 2015 (the bill to clarify The Nonadmitted and Reinsurance Reform Act (NRRA))
  • The Department of the Treasury’s proposed rules to implement changes to the Terrorism Risk Insurance Program (TRIP or TRIA) required by the Terrorism Risk Insurance Program Reauthorization Act of 2015
  • R. 3794, The Nonprofit Property Protection Act which will allow nonprofit RRGs to provide property insurance to their members who are 501(c)(3) nonprofits with over $50 million in premium, in addition to the liability insurance they already provide
  • FHFA’s rule to exclude captive insurers from the Federal Home Loan Bank
  • Activities and updates from the NAIC
  • Vermont’s captive insurance bill, H-538, which was signed into law last spring
  • New leadership at the Department of Financial Regulation, as well as an update on State leadership races

Go to this link  to register online, but remember, it is for VCIA Members only – membership has its privileges!  We will take questions during the webinar and I will do my best to be as snarky as possible and keep to a very high level of “truthiness.”  : )

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

Rich Smith
VCIA President

Keep Moving Forward

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A couple of quick updates from the President’s corner…

We are in the process of surveying our members and talking to captive leaders here in Vermont about potential changes to Vermont’s captive statute. After gathering ideas and vetting them internally, we meet with the leadership team at DFR and begin an iterative process that will ultimately produce a “captive bill” for introduction to the Vermont legislature in January. Coming in with a coordinated bill between the regulators and the industry gives us the clout to move a bill quickly to passage. If you have any good ideas (hey, even crazy ideas) send them my way – you never know!

Just a quick note to let folks know I will be attending the SIIA (Self-Insurance Institute of America) conference in Austin starting this Sunday and then heading directly to the NRRA (National Risk Retention Association) in Chicago on Tuesday night. SIIA is a member-based association dedicated to protecting and promoting the business interests of companies involved in the self-insurance and alternative risk transfer (ART) industry, including captive insurance. It’s a great opportunity to meet and talk to others in the self-insurance world. And NRRA’s conference brings together the leaders in the RRG industry annually to discuss the opportunities and challenges in the world of Risk Retention Groups. Vermont has more RRGs licensed than any other captive domicile.

And finally, I want to give a shout out to Bob Gagliardi from AIG (and VCIA Board Member) for his promotion. Bob was recently promoted to AIG’s Global Director of Captive Management and US Fronting. Our expectation is that AIG will need to build a new skyscraper in downtown Burlington to fit the whole operation.  Congrats, Bob!

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

Rich Smith, VCIA President

Back in the Saddle…

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Thanks to all who joined us in beautiful Burlington, Vermont, a couple of weeks ago for VCIA’s annual conference. Without a doubt, it was a terrific 2 ½ days with great programs, networking and events. With over 1000 attendees from 41 states and 14 countries, our annual gathering in August has grown to be THE captive insurance forum! To quote from one of our attendees “All the important captive market players from North America and parts of Europe were in attendance.” And 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 in the saddle again looking out for the captive industry. Currently we are working with U.S. Treasury on changes to the TRIA data call for captives, fighting to pass the NRRA clarification bill, and generally looking out for the captive insurance industry. You got to be a tough hombre to keep the posse moving!

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

Rich Smith
VCIA President

Go, Len!

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Len Crouse, shown here during his time as Deputy Commissioner of Vermont Captive Insurance

It’s officially summer in Vermont and things are getting hot – and I’m not necessarily talking about the weather. As most of you know, VCIA is hosting the “World’s Best Captive Conference” this week in Burlington (and yes, I have trademarked that!) and I am sure you are all making plans to join us.

I wanted to take the opportunity to congratulate Vermont’s own Len Crouse for making Best’s Review list of Key Influencers! As most of you know, Len was head of Vermont’s captive division during the heady days of growth for the State’s captive industry. As the piece rightly points out, he helped set the “gold standard” for Vermont and the industry as a whole when it comes to captive regulation. Len joins luminaries such as Hank Greenberg, Brian Deperrault, and Ajit Jain of Berkshire Hathaway. Congratulations Len – well deserved! And don’t miss Len speaking at the VCIA conference on the panel Group Captives Take Center Stage.

Thank you all very much, and I look forward to hearing from you and seeing many of you this week!

Rich Smith
VCIA President

 

The Power of Risk Managers

blogcapitolEarlier this week, RIMS (the Risk & Insurance Management Society Inc.) held their annual “RIMS on the Hill” legislative summit in Washington DC. RIMS is a global not-for-profit organization representing more than 3,500 industrial, service, nonprofit, charitable and government entities of more than 11,000 risk management professionals.  At the RIMS 2016 Legislative Summit, members from across United States held 70 meetings with legislators and Congressional staff focused on three legislative initiatives: proposed legislation on cyber security, ADA protection and tax treatment for captives.

Thanks to the hard work of VCIA’s Washington counsel, Jim McIntyre, RIMS highlighted their support for the Captive Insurers Clarification Act, S. 1561, introduced by Vermont Sen. Patrick Leahy and South Carolina Sen. Lindsey Graham on the behalf of the captive insurance industry. As most of you know, the bill would officially omit captive insurers from the Nonadmitted and Reinsurance Reform Act. The act failed to explicitly exclude captives from the definition of “nonadmitted insurers,” which leaves insureds unclear on whether independent procurement taxes on the insurance purchased from their captive must be paid to their home state in addition to the captive domicile.

Having the preeminent risk managers organization make the captive bill one of their top three priorities is, well there is no other way of saying it, “HUGE”! Because they represent the risk managers from such a variety of important organizations, Congress listens. Let’s hope Capitol Hill will do more than pay heed; but act!

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

Rich Smith,
VCIA President