Captive News

NRRA never intended to apply to captives US Congressman Scott Garrett, the co-author and one of the principal sponsors of the Non-admitted and Reinsurance Reform Act (NRRA), a sub-section of the Dodd-Frank Act, has said 'unequivocally' that the legislation was never intended to apply to captive insurance. Congressman Garrett said, "Unfortunately, several states have indicated that they plan to interpret the NRRA to also apply to the captive insurance industry. This was not the intent of Congress. In drafting this legislation, it was never contemplated to have the captive industry fall under the NRRA."hideHe went on to state, "At no time was the legislation's application to the captive industry addressed or suggested. Furthermore, in the bill's summary, the intent of this legislation was clearly stated to impact only two specific industries - surplus lines and reinsurance." He added: "At no point during the bill's multi-year consideration was its application to the captive insurance industry ever discussed... Should regulators implement this faulty interpretation, captive insurance companies would be subject to additional taxation and regulation - the exact opposite intent of the underlying legislation." The Coalition for Captive Insurance Clarity (CCIC), formed under the leadership of the Vermont Captive Insurance Association, said that the NRRA has caused confusion over whether it is applicable to captive insurance due to the misinterpretation of the current language. The CCIC is pushing for clarity that may include legislative language that would reaffirm that the intent of the new federal NRRA was never intended to apply to captive insurance. "Congressman Garrett's statement is further testimony that we have understood the purpose and intent of the passage of this law. This should send a clear message to any domicile that any information to the contrary can only be interpreted as a self-serving tactic that is neither accurate nor in the interest of clients and the industry," said Daniel Towle, Vermont's Director of Financial Services. NRRA ambiguities could lead to captive litigation Insurance recovery law firm, Anderson Kill & Olick (AKO), has published a white paper on the NRRA, in which it states that the ambiguity in the NRRA's wording, if not clarified, will probably result in unnecessary litigation, inconsistent rulings, and a waste of both private and public resources. "A strong case can be made that the NRRA does not apply to captive insurance and an even stronger case can be made that the NRRA was not intended to apply," said Phil England, Head of the Alternative Risk and Captive Insurance Services Practice group at AKO. "Bottom line, captives should not have to move from a domicile because of the NRRA. Congress should amend the law to make clear that the NRAA does not apply to captive insurance companies. In the meantime, the prudent course is to wait for further clarification and not redomesticate from one state to another solely based on this statute." He added, "Legislative intent is very significant in interpreting how a law should be implemented. It is also an important factor in how the courts will rule when litigation occurs. The clarifying statements by two primary architects of the NRRA - former Subcommittee Chair, Judy Biggert and Congressman Scott Garrett of New Jersey - are significant in this regard. Those statements clearly indicate that it goes against the intent of the NRRA to levy self-procurement taxes on 100% of the premiums paid to a captive by a 'home-state' policyholder that has material risks located outside of that state." He concluded that the passage of the NRRA could not have been meant to strike down years of existing tax treatment or Supreme Court rulings regarding state taxation of captive insurance companies. "Congress, in its haste to insert a minor provision aimed at surplus lines insurance into the already unwieldy Dodd Frank Act, inadvertently upended one of the organising principles of the captive insurance world - regulation and state taxation by the captive's domicile. States that try to apply the NRRA to captive insurance companies are likely to face litigation," he said. Hong Kong government plans to encourage captive formations The China Daily has reported that the Hong Kong government is to adopt several measures to facilitate the financial industry, including extending the offshore funds' profits tax exemption and 50% profits' tax reduction on the offshore insurance business of captive insurance companies. The intention is to attract more financial institutions to the city and to increase local employment. The newspaper quoted the Hong Kong Financial Secretary who said that many large enterprises in Asia are keen to operate their own captive insurance companies to insure against their business risks. He said that to attract more captive business, the government was proposing to reduce the tax on profits of offshore captive insurance business by 50%. The paper added that there are currently many mainland companies which are engaged in overseas businesses but few of them have their own captive insurance companies. "The central government announced in June 2012 that it supports mainland institutes to establish their captive insurers in Hong Kong to improve the risk-protection mechanism," the China Daily said. "More mainland companies are expected to be interested and it could also drive demand for professional services in the city, said the government sources." The Standard, an English language newspaper in Hong Kong, reported that the government is seeking to introduce a bill into the Legislative Council of the Hong Kong Special Administrative Region this year to establish an independent Insurance Authority to align the insurance regulatory regime in the local insurance industry with international practices. The paper quoted the Financial Secretary, John Tsang Chun-wah, as saying, "I propose to reduce the profits' tax on the offshore insurance business of captive insurance companies, such that they will enjoy the same tax concessions as those currently applicable to reinsurance companies." Guernsey to agree package of tax measures with UK Guernsey is looking to finalise a draft agreement on a proposed tax package with the UK, which it says will 'reinforce Guernsey's commitment to tax transparency and its status as a leading and respected mainstream international finance centre.' The proposed package comprises: agreement in principle to enhanced reporting of tax information along Foreign Account Tax Compliant Act (FATCA) principles through an Intergovernmental Agreement (IGA) with the UK, including alternative reporting arrangements for non-domiciled UK tax residents; agreement to negotiate a revised Double Taxation Agreement; and agreement on a disclosure facility. Guernsey is also moving towards concluding an agreement with the US on FATCA. Both IGAs are subject to the proper decision making process of the Guernsey parliament, the States of Guernsey, and thus will be presented to the House for approval later this year. Guernsey's Chief Minister, Peter Harwood, said: "Guernsey is fully committed to combating tax evasion and the principle of automatic exchange and our twin IGA approach to US/UK reporting will provide our industry with a very strong platform to compete on the world stage against weaker, less transparent and compliant jurisdictions." Willis appoints captive leader in Europe Lesley Harding has been appointed as chief executive officer of the Willis Global Captive Practice in Europe. Reporting to Malcolm Cutts-Watson, Chairman of the Willis Global Captive Practice - Europe, Ms Harding will lead the European captive management and advisory team. She was most recently a Client Advocate with Willis' Global Solutions team focused on developing and managing relationships with a number of Willis' global clients - particularly in the Energy industry. "We see great potential in Europe for the growth of captives," said Mr Cutts-Watson. "This is because organisations are seeking to reduce their dependence on the commercial insurance market and increasingly looking at alternative means of funding risks. A captive provides a structured approach to the management of retained risk, generating financial savings and operational benefits."

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