Back in the Saddle…

rich-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

Come One, Come All!

MedicineshowRS

The VCIA Annual Conference is NOT just for VCIA Members and the folks here in Vermont. Last year we had nearly 1100 people in attendance, from 42 states and 8 countries, including several captive regulatory teams (and captives) from many of our favorite competing domiciles.

Around 28% of our attendees were captive owners, a fact that makes VCIA very proud. So if you want to hear from and network with the very best and brightest experts in the industry including captive colleagues from all around the world, you should sign up today for VCIA 2016! This event can’t be missed.

Come get educated, network, and enjoy the Vermont summer on the shore of Lake Champlain. Come one, come all! August 9 – 11, 2016!

 Thank you very much, and I always enjoy hearing from you.

Rich Smith,
VCIA President

What’s Up, Doc?

richasscrubsstar

Janice Valgoi and I are in DC this week for the 2016 PIAA Medical Liability Conference, where we are working the floor spreading the good word about captive insurance. The conference brings together hundreds of professionals who work in insurance and alternative risk transfer, all looking to gain new insights on the global and day-to-day issues facing medical liability.

Today, no industry is changing as quickly or fundamentally as healthcare. At the same time, escalating medical professional liability costs have become a critical issue for health care providers and those seeking to improve health care value and outcomes.  Healthcare continues to be one of Vermont’s most abundant sectors. Currently 96 hospital and doctors’ groups have Vermont Captives, making it the second largest sector for captives trailing manufacturing with 100.

Successful MPL captives can measure the success of hospitals and physician groups in improving the safety of care by the degree to which malpractice asserts for those organizations declined over time. After all, everything else being equal, if safety has improved, the chance of doing harm and being sued should drop.  Further, to the extent a captive is successful at helping its members carry out risk management programs, actuarial assumptions can be modified, and premiums should go down.  Also, since previous premiums were based on old actuarial assumptions, an effective captive should generate a surplus in earnings that can be returned to its members. Save money = save lives!

If you are at the PIAA conference, swing on by to say hello!

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

Richard Smith,
VCIA President

Opening Day!

openingDaynixonrich

Sure, many of you get excited with the coming of spring and opening day of Major League Baseball (which, by the way, has its captive in Vermont and is a valued member of VCIA!), but WE get excited here in Burlington for two reasons:

  1. The snow is finally melted and
  2. VCIA just opened registration for the best captive conference in the world!

After much planning and work by all our wonderful volunteer conference task force members and the intrepid crew here at VCIA, we have “opened the gates” for the captive industry to come to Vermont this August 9th -11th for our 31st annual conference.

Here are some GREAT reasons to come to VCIA this summer:

1. It’s a great source for captive career development and networking; earn CPE / CLE / ICCIE credit

2. Sessions with focus areas for those new to captive insurance, those involved in accounting / finance, operations, and risk management

3.
More advanced sessions than ever before, and expanded educational content

4. Two great keynote speakers: Charles Davis, CEO of Stone Point, and David Pogue, founder of Yahoo! Tech

5. Engaging, fun session formats including a game show, a mock trial, a TED talk style session, panels moderated by trade journalists, interactive technology, and several sessions using case studies for illustration

6. Many captive owner panelists from some of the most prestigious organizations in the world. All the industry’s key players will be at the VCIA Conference

7. New option for a tour of Stowe for your spouse or guest

8. Risk management tour (for captive owners) of the Vermont Teddy Bear Company

9. Connect with other captive professionals and get advice from our conference ambassadors at the “Ambassador Lounge”

10. Relax, learn and have fun with industry peers!

 
If that’s not enough, think of all the clever puns you can make with our “Lights, Camera, Captives!” film-making theme! Registration is now open. Register now to reserve your space at this great event!!

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

Rich Smith
VCIA President

RIMS and the Commish…

Susan-Donegan

Susan Donegan, Vermont’s Commissioner of the Department of Financial Regulation,has announced that she will be stepping down in June. Susan has been a true friend of the captive industry.

I hope to see a number of you at the RIMS conference this week in San Diego. Janice and I are working the Vermont booth (#2355) with Dan Towle, Dave Provost, Sandy Bigglestone, and a number of other Vermont luminaries. Although RIMS is, as a certain Presidential candidate would say, YUUuuuuge, its remarkable how many folks come around to the Vermont booth either wanting to learn more about captives or connecting with the team on a number of issues.  If you have a Vermont domiciled captive make sure you come on over and sign the RIMS Poster in the booth!

Our own Jim McIntyre will be moderating the captive insurance panel at 4:00 on Monday at RIMS. His panel is entitled Data Security and Breach Notification Legislative Update: What You Need to Know which will examine the federal government’s work to pass data security and breach legislation for consumer protection about to go into place. Jim will examine the legal ramifications for insurance companies.  Another panel included Mike Elliott, Senior Director of Knowledge Resources at The Institutes; and former VCIA Board Chair, Steve McElhiney, President of EWI Re, Inc. for a session entitled Using a Captive as a Risk Management Tool: A Case Study. Of course they are at the same time!

Changing gears, many of you might have seen the news the other day that Vermont’s Commissioner of Financial Regulation, Susan Donegan, is stepping down at the end of June. Susan is the “uber regulator” in Vermont and has been a true friend of the captive industry throughout her tenure. She supports the industry with the Governor, at the State House, and at the NAIC. Susan told me she didn’t have any immediate plans, but just wanted to enjoy a Vermont summer without all that work stuff to worry about. The Commish will be missed and we all wish her well in whatever new adventure she pursues!

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

Rich Smith
VCIA President

Captive Bill in Final Stages of Passing (No Foolin’)

mrteeVermont’s General Assembly is going through the final stages of passing this year’s captive bill, H-538. I say “this year’s” because every year VCIA uses its member legislative survey results as a foundation to meet with leadership at Vermont’s captive management companies and captive attorneys in order to draft proposals for changes to Vermont’s captive statutes. With those proposals in hand, we meet with Vermont’s captive regulators to hammer out what will become the initial captive bill to be presented to the legislature.

We do this every year because we know it’s important. Why? First, the captive industry is always evolving, so we need to make sure Vermont’s laws keep pace. Second, giving Vermont’s legislators a bill every year to review, change and pass allows them to be engaged with the captive industry – a touchstone that cements their ownership of and responsibility to this very important industry to the State.

H-538 will address a number of issues, including the following:

  • Allow sponsored captives and association captives to file reports on a fiscal year-end. Many sponsored captives are only open to affiliates, and association captives are limited to members of the association; in those cases it is appropriate to allow the captive’s year to match the owner/insured’s.
  • Allow sponsored and industrial insured captives to enter dormant status. When we permit the company to enter a dormant status, we waive the premium tax and the company stays in Vermont, ready to be reactivated when and if the need arises.  The same logic was applied when we passed the dormant status last year: keep the company here rather than have it dissolve.
  • Protected cells operate as segregated accounts within an insurance company operated by a sponsor. Our focus in the past has always been on fortifying the walls of the cells so that cell participants are assured that their money is protected from the liabilities of other cells.  The bill will now allow the free movement of cells to a different sponsored captive or the conversion of cells into either an incorporated cell or a separate captive.
  • The legislature passed RRG governance standards last session. With a year of operation under our belts, some minor adjustments will be made to clarify the rules for easier implementation.

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

Mergers & Acquisitions (& You)

mergers-and-acquisitions

A study by insurance investment management firm Conning & Co., reported in a recent article from Business Insurance, sees another big year of mergers and acquisitions in the world of insurance. How does this affect you, a member of our elite captive insurance industry?

According to the report, the volume of merger and acquisition activity in the insurance industry more than quadrupled in 2015, (from $43.8 billion to $194.9 billion in 2014), with additional major activity expected, particularly in the property/casualty sector.   Those are big numbers. Some of the increase was driven by several large transactions, including Ace Ltd. and Chubb Corp.’s deal, according to the report entitled: “Global Insurer Mergers & Acquisitions in 2015, The Big Bang”, but the report also stated there were some sectors facing strong external challenges, such as medical professional liability.

The healthcare transactions were motivated by a number of factors, including the Affordable Care Act. “Growth in government-subsidized programs, such as Medicaid and Medicare Advantage, accompanied by the retreat of traditional employer-based plans in favor of high-deductible plans and exchanges, generated pressure to acquire Medicaid and Medicare providers and build scale to generate efficiencies,” according to the report.  We have certainly seen the impact on healthcare captives in the same vein. Clearly, mergers and acquisitions will put continued pressure on the captive arena as both the traditional and larger captive community seek these same efficiencies. The report predicts continued M&A activity in the insurance world this year as well, so hold on to your hat (or captives).

And speaking of acquisitions, I want to take this opportunity to introduce our new part-time staffer here at VCIA, Dave Rapuano. Dave will assist with VCIA communications and webinar initiatives and is a recent graduate of Champlain College with a degree in Graphic Design and Digital Media. His skills and experience will be a wonderful asset to our great team – welcome Dave!

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

Who’s Afraid of the IRS Defining Insurance?

afraidofthebigbadwolf2
I just got back from the annual CICA conference in Arizona this week and I know what you are thinking: nothing but a scam to get into the nice sunny weather. Well, maybe, but there was a lot of really good stuff as well.

One piece of news that there was much discussion over was the recent public letter ruling (PLR) by the IRS, which held that a captive it was reviewing was not an insurance company and failed to meet the requirements of Section 501(c)(15) to qualify as a tax-exempt entity. Now, as we all know, for many years there has been much consternation on how the IRS defines insurance for tax purposes, and maybe we should be happy that there now seems to be something a little more definitive from the service on this issue, even though the lawyers tell me that a PLR is not considered precedential.

Bruce Wright, partner in the Tax Department at the law firm of Sutherland Asbill & Brennan, as well as the recipient of this year’s CICA Distinguished Service Award, provided the overview. In brief, over a three year period the captive wrote a number of policies, participated in a pooling agreement, and assumed third-party reinsurance. Of particular interest is the ruling’s focus on whether the different types of coverages provided by the captive involve insurance risk. The ruling found only two of the coverages, weather-related business interruption and excess directors and officers liability, involve insurance risk. The IRS concluded that the other coverages involve only business or investment risk, not insurance risk.

The problem is that the IRS’s definition of what constitutes insurance risk versus business risk (whatever that is) and investment risk is all over the place. Some of the coverages the IRS disallowed included Product Recall, Excess Pollution Liability, Loss of Major Customer, Excess Intellectual Property, Excess Employment Practices Liability, Excess Cyber Risk, and Loss of Services of Key Employee.

I can see that some of the coverages might have validity for exclusion, like the Excess Cyber coverage focused on purchasing security upgrades that should have been a part of the company’s regular business operations. However, the majority make sense as insurance and include many coverages we see in captives on a regular basis! Furthermore, Bruce reported that in reaching its conclusion the organization is not an insurance company for federal tax purposes, the ruling does not appear to take into account recent Tax Court cases that address the insurance risk and risk distribution issues.

The fact that the IRS’ lack of consistency in its treatment of captives is no surprise; the lack of gray matter being put to its rulings is puzzling to me, if not to many of you in the world of tax!

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

The Dirty Dozen Rides Again

blogdirtydozen

By now most have probably heard that 831(b) captive insurers have, for the second year in a row, ended up on the latest IRS annual Dirty Dozen list of “tax scams”, even with recent legislative changes passed at the end of last year in the tax extenders bill by Congress.

The changes to the program, that included raising the maximum tax-deductible annual premium contribution to $2.2 million and imposing new limits on how much in 831(b) written premiums can come from any one policyholder, take effect in 2017; one reason, I presume, 831(b)s remain on the list. Through the end of 2016, parents of 831(b) captives can still 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.

However, in their news release, the IRS said premiums paid by 831(b) captive owners may be double or triple the premiums the owners were paying for the same coverage purchased from commercial insurers, or the owners may pay premiums to the captives for “esoteric, implausible risks.” The motive, the IRS said, for such underwriting practices: maximum policyholders-owners’ tax deductions to reduce their taxable incomes.

With a declaration that “underwriting and actuarial substantiation for the insurance premiums are either absent or illusory” it seems pretty clear that the IRS will not be mollified by changes in the law alone!! Sometimes there’s just no pleasing people.

On a happier note, THANK YOU to all who showed up at our Road Show in New York City this week. With over 100 attendees and a great panel including Bob Cerutti of Tyco, Michaele DeHart from Syracuse University and Mike Serricchio from Marsh, it was a super event and another example of VCIA’s efforts to “preach the gospel of captives!”

Bern Notice

bernieandrichfWhile not predicting any outcomes to a more than interesting political season, I must admit to a certain (yes, unrealistic!) fantasy should a Vermonter rise to the top. Clearly I have neither asked for a position in the administration nor have I been offered one, but since there are only so many people who live in Vermont, my resume would have to bubble up eventually, right?? And Bernie actually knows something about captive insurance and has been supportive of the industry here in Vermont for many, many years. So the possibilities are endless! Who knows….Secretary of State? Director of the Federal Insurance Office? One can dream.

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

Rich Smith
VCIA President