VCIA
The NRRA has been a continuous source of misunderstanding when it comes to captives. CIT talks to Richard Smith of the VCIA in an attempt to see if there is light at the end of the tunnel
A chairman of an insurance committee in the US House of Representatives caused quite a stir on her exit. Judy Biggert, an Illinois Congresswoman, caused a sigh of relief for captives everywhere, as she reaffirmed that the Non-admitted and Reinsurance Reform Act (NRRA), a part of the Dodd-Frank Act, was never intended to apply to captive insurance.
In a letter to the new chairman, she wrote: “As a supporter of NRRA and an advocate for its inclusion and passage as part of Dodd-Frank, I can tell you unequivocally that the NRRA was never intended to include the captive insurance industry,” adding that a technical amendment may be necessary for solving this misperception.
“This provision [NRRA] was intended to create certainty in the tax treatment and regulation of the surplus lines and in the reinsurance industry. Despite this very specific purpose, a couple of states are misinterpreting the application of NRRA’s definition of ‘Non-Admitted’.”
The Coalition for Captive Insurance Clarity, formed under the leadership of the Vermont Captive Insurance Association (VCIA), has been pushing hard for clarity that may include legislative language that would reaffirm NRRA was never intended to apply to captive insurance.
“A few domiciliary states and opportunistic service providers are clearly exploiting the present situation which is not in the best interest of their clients or the industry as a whole,” according to Dan Towle, Vermont’s director of Financial Services, who recently spoke on the subject.
Richard Smith, president of the VCIA, explains whether the confusion can, and will be, cleared up.
How is the current regulatory landscape, particularly with the ongoing NRRA confusion?
The regulatory landscape has not changed as there has been no legislative fix to the NRRA in the Dodd-Frank Act as of yet. Our hope is that the letter from the departing chair will help both in educating regulators and the captive community that NRRA was never intended to include captives.
Why was it a departing chairman who confirmed NRRA was never meant for captives? Are you still looking for a current chairman to reaffirm the claims?
It was important to get the departing chair’s view on the situation since she was instrumental in the original concept, drafting and passing of the NRRA. It verifies our view all along that NRRA was never meant for captives and that it has exactly the opposite effect on the captive industry that it was trying to fix for surplus lines. Our hope is that the current chair will take this into consideration as we seek a legislative fix.
Dan Towle has stated that a few domiciliary states and opportunistic service providers are clearly exploiting the present situation—how so?
Some domiciles and service providers may presently manipulate the interpretation of this federal act and thereby pressure companies to domicile in their home state either to generate tax revenue for the state, or expand the business of the service providers. This practice (or behavior) is hardly in the best interest of that company or the captive insurance industry as a whole.
When the NRRA is clarified, where do you see captives flocking?
I don’t think captives will necessarily ‘flock’ to any specific domiciles once NRRA is clarified. What I think it does is take out an unintended factor for companies looking to domicile captives or grow their captive business. Companies need to have the choice of where they domicile based on regulatory strength, not based on tax ambiguity.
How are captive company figures doing in Vermont?
In 2012, Vermont licensed 32 new captive insurance companies bringing the total number of licenses to 984, with 22 single parent captives, one risk retention group (RRG), three sponsored, and six special purpose financial captives. Last year’s new captive insurance licensees brings Vermont’s overall total to 586 active captive insurance companies.
What lines are proving particularly popular at the moment?
Although there have been many different lines, the top industries licensing captives in the past year in Vermont continue to be insurance, hospitals and medical groups and manufacturing. Vermont was also busy with activity in RRGs, which continue to be a growth sector.
How receptive are US domiciles to captives wanting to cover emerging risks (eg, cyber)?
The captive insurance industry is specifically equipped to quickly respond to emerging risks and opportunities. Any well-established captive domicile will be very responsive to a well thought out business plan, no matter what the risks may be.
