Captive Nation

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

Back in the Saddle…


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

The Cyber Conundrum

cyberattack_1805164b Last month, the Federal Insurance Office (FIO) issued its third annual report on the insurance industry, and I found two things of note. First, the report criticized state insurance regulators for not doing enough to address ongoing concerns about captive reinsurance. Now, of course that caught my attention, and we know this is an ongoing issue between the NAIC and the FIO, but it was the report’s discussion of cyber risk that really caught my eye.

The report estimated that the U.S. cyber insurance market has about $2 billion in capacity, and the FIO indicated that underwriters should improve cyber risk processes to encourage the pooling of insurance data and improvements in cyber risk expertise. “Recently, concerns have been raised regarding the capacity and scope limitations of the cyber risk insurance market, with some market participants describing market capacity for cyber risks as ‘very small’ and observing that billion dollar coverage limits are needed to adequately address the losses posed by cyber risks,” said the report. There has been a lot of discussion of writing cyber risk in captives, and we have a good example in the case of Penn State’s captive, Nittany Insurance, writing cyber for all their students, researchers and faculty.  As Nittany’s Gary Langsdale outlined in the cyber webinar VCIA held in May of last year, on the average day at Penn State, 170,000 email accounts on over 100 separate systems receive 3.2 million emails; in addition, last year their email system filters blocked over 95 million spam emails!

As with terrorism risk, the question becomes are we now at a place where the impact of a cyber-attack could be so great and cover a large swath of territory, businesses and systems in the U.S., that cyber risk insurance programs will be overwhelmed?  To me it raises the question whether a program similar to TRIA, with the US government as a backstop, needs to be devised.  TRIA and its subsequent extensions serve as reinsurance for commercial Property and Casualty policies covering losses due to acts of terrorism in the U.S. In exchange for federal support, insurers are required to offer terrorism coverage.

As with terrorism coverage, a captive providing cyber risk with a federal backstop could offer several advantages over a commercial insurance carrier in addition to the typical advantages of a captive program. Because the typical aggregate-earned premium for a captive insurer is minimal compared to that of commercial insurers, the deductible amount is often quite low. The government, using similar TRIA guidelines, could respond to certified losses typically excluded in commercial cyber policies. Captives are not required to pay funds to their policyholders in advance of receiving reimbursement from the federal government, alleviating cash flow issues.  On the whole, corporations accessing TRIA directly through their captives generally have broader coverage, and, in the event of no loss, may recoup premiums.

My fear is that without a federal backstop similar to TRIA, capacity could dry up with one or two big cyber-attacks.  Something to think about.

Thanks and keep in touch!

Rich Smith
VCIA President

Washington Unbound

Board and Cong WelchJust returned from a productive trip to our nation’s capital this week (I know, sounds a little counter-intuitive these days). We started out at the Self Insurance Institute of America (SIIA) annual conference which brings together many professionals in the self-insurance business.  Self-Insurance (also referred to as self-funding) is an alternative risk transfer strategy used by tens of thousands of employers across the country to finance their group health plans and workers’ compensation programs, where expenses are paid as they are incurred as opposed to paying a fixed premium to a traditional insurance company. Since captive insurance is a form of self-insurance, it was good to see the growing interest from both the businesses that use self-insurance for their employees as well as the many service providers in the industry taking a look at the captive model.  Mike Ferguson and his team at SIIA put on a great conference and I am sure we will see more intersections between our groups going forward.

While in DC, a number of VCIA’s board members, our DC counsel, Jim McIntyre, and I met with senior staff from the FIO’s office to discuss the concerns raised over the Congressionally mandated collection of information regarding the use and uptake of TRIA. VCIA was part of a broad coalition of organizations that had urged Congress to pass the reauthorization of TRIA last year, as many of our members utilize it in their captives. Not surprisingly, the FIO staff members had little background in the captive arena; however, I believe we were able to take another step in educating policy makers on the subject. The staffers seemed genuinely thankful for our information and I am happy that we continue to keep the lines of communication open.

Later that day, we met senior staff of Senator Leahy’s office to discuss the captive clarification bill he co-sponsored with Senator Graham of South Carolina. Erica Chabot, Legislative Director, and Maggie Gendron, Legislative Assistant, have been doggedly pursuing a mechanism to get the bill that we believe will “fix” the NRRA issue moved forward. Here’s hoping for a break in the logjam sooner rather than later!

Finally, we sat down with Congressman Peter Welch and his Legislative Director, Patrick Satalin, to thank them for their continued support of Vermont’s captive insurance industry. As usual, Congressman Welch impressed us not only with his unremitting backing of our industry, but his knowledge of captives as a whole. I feel VCIA’s on-going communication and efforts on behalf of the industry continues to help nurture support in Washington from these important leaders.

So, overall, a great trip to DC.

Thanks and keep in touch!

Rich Smith
VCIA President

A Fresh Start

Happy New Year, captive community! Here’s hoping 2015 will be a great year for captive insurance. We are already off to a good start with the House passing a TRIA reauthorization bill as one of their first acts. The bill is the same language as the compromise bill that was worked out with Senate and House leaders last year but was held up due to one lone Senator, who has since retired.

The measure that passed Wednesday — H.R. 26, the Terrorism Risk Insurance Program Reauthorization Act of 2015 — calls for extending the program for six years, gradually increasing the trigger for activating the backstop to $200 million from the current $100 million and gradually increasing the industrywide retention to $37.5 billion. The bill also would establish a new National Association of Registered Agents and Brokers (NARAB) that would streamline interstate agent licensing.  The prevailing wisdom is that the bill should pass without too much difficulty in the Senate, but nobody is really sure of the timing. My hope, is with both Congressional bodies under the same party leadership a lot of the partisanship that stopped any movement on legislation will dissipate somewhat.

And speaking of examples of strong bipartisan support, I hope all of you who can will join us next week, on Thursday, January 15, in Montpelier for VCIA’s annual Legislative Day. This is our best opportunity to meet with state officials and legislators to thank them for all their support over the years as well as engage them on the issues that face our industry today. If you are able to join us for the day (or part of the day) it sends a terrific message to Vermont’s leaders. And please encourage your colleagues to register as well – I can’t emphasize enough how important it is to have our members mobilize for this day!

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


Post-Election (and Post-Turkey) Haze

Captive insurance turkeyWith the mid-term elections behind us we can look into the captive insurance crystal ball and divine how our industry will fare on Capitol Hill in the year ahead… well, not really. I think one thing all the pundits can agree on is that not a lot will happen in the lame-duck session of Congress to the end of the year as the newly energized Republican leadership in the Senate will prefer to postpone any major actions that are not absolutely necessary for running the state until they control both the House and the Senate in January (and even those issues are not guaranteed to move before the end). So I suspect we will see some sort of TRIA extension, as well as little to no action on updating the Liability and Risk Retention Act (LRRA) and the technical correction to the Non-admitted and Reinsurance Reform Act (NRRA) passed in Dodd-Frank a few years ago.

It sounds like there may be some agreement between the two parties to make necessary adjustments to Dodd-Frank early next year. Both sides agree that there need to be some tweaks to fix issues that always arise when implementing policies at that magnitude. But it will still require that the Republican and Democratic leadership can keep the politics to a low boil.

In regards to TRIA reauthorization, House and Senate negotiators remained at an impasse this week, and not necessarily because of the partisanship we have seen over the past few years. As you know, initially enacted after the Sept. 11, 2001, terror attacks, the federal cost-sharing program that provides a backstop in the event of another catastrophic attack is set to expire at the end of 2014.  The Senate version to reauthorize the program for seven years—approved 93-4 in July with nearly unanimous Senate Republican support—would be a better bill for the captive insurance industry.  However, there is an ideological split within the GOP, with House Financial Services Committee Chair Jeb Hensarling (R-TX) opposing the Senate approach, and saying bigger changes are needed to protect taxpayers, and other Republicans, like Rep. Peter King (R-NY), urging the House to act—and openly questioning the continued opposition by some GOP colleagues.  The business community has, for the most part, opposed Hensarling’s approach. And Republican leaders haven’t yet brought his bill to the floor for a vote—a sign of uncertainty that it would have even enough Republican support to pass.  So like the way one sometimes feels from overdoing it on Thanksgiving, my crystal ball is equally hazy.

In other news, our good friends at the audit firm of Johnson Lambert elected John Prescott as the firm’s next Managing Partner. John will serve as Co-Managing Partner with Debbie Lambert beginning January 1, 2015 and will begin a five-year term as Managing Partner on January 1, 2016.  Debbie will remain with the firm after stepping down as Managing Partner and will be returning primarily to a client service role.

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


Just before sending this blog post, we heard from Jim McIntyre, VCIA’s DC legislative counsel. Here is what he said about TRIA reauthorization:

Sen. Schumer and Rep. Hensarling have agreed on the outline of a reauthorization bill.  They have tentatively agreed to the following outline, which could change:

  • 6 year reauthorization;
  • $200 million trigger, phased-in;
  • 80-20 co-share;
  • Study on bifurcation; and
  • NARAB II (broker licensing)

They continue to discuss other issues such as certification and recoupment, a study on up front premiums, TRIA insurance data collection and the creation of a risk retention council.  A final bill could be included in a larger government funding bill next week (currently looking at Wednesday) or voted on separately.  With time running out, including it in the omnibus bill is the most probable.  They are hoping to conclude the negotiations shortly.

TRIA Reauthorization


I want to pass on a report regarding TRIA reauthorization from Jim McIntyre, our intrepid representative down in Washington who has been monitoring captive related issues for VCIA.

The Senate has approved S.2244 to extend TRIA for seven years by a bipartisan vote of 93 to 4. The bill increases the insurers’ co-pay from 15 to 20 percent and raises the threshold of losses for mandatory federal recoupment of payments to $37.5 billion.  Sen. Tester offered an amendment to S.2244 that establishes the National Association of Registered Agents and Brokers (NARAB), which simplifies the agent and broker licensing process to ensure they can serve clients no matter where they are domiciled. The Senate passed this amendment by a voice vote. The Senate-passed version of NARAB includes a two-year sunset provision which means Congress will have to reauthorize NARAB two years after the first license is issued, which could be about four years from enactment.

The House Financial Services Committee recently voted to report out a bill to extend the federal terrorism insurance program for another five years. HR. 4871 would extend TRIA for five years, increase the insurer co-pay to 20 percent, and create a new program bifurcation for nuclear, biological, chemical, or radiological (NBCR) type of attacks. The House legislation also increases the program’s trigger over a four year period from $100 million to $500 million for non-NBCR events.  Clearly for the captive community the Senate version is preferable. Congressman Hensarling, who chairs the House Finance Committee, is no fan of TRIA and felt compelled to put something out there so as not to lose his voice in the debate.  Although Jim and others close to the issue feel Congress will eventually pass some type of TRIA reauthorization before it expires on December 31, this sets up a potential end-of-the-year scenario where Congress will delay passage until the waning days of their term.  Keep the Zantac close at hand…

Have a great weekend and, as always, please let me know of any issues or news affecting our great industry, or any ideas you might have to better serve you. Thank you all very much and I look forward to hearing from you!