Captive insurance industry representatives fighting an IRSproposal that would add to their tax burden said they met yesterdaywith Department of Treasury officials who seemed "genuinelyinterested" in hearing from them.

The captive group believes the regulatory change the IRS hasproposed would undermine their industry.

Richard D. (Dick) Goff, president-elect, Self-InsuranceInstitute of America Inc., and Cliff Roberti, director ofgovernment relations for SIIA, commented after meeting with eightranking officials from the U.S. Department of Treasury and theInternal Revenue Service in Washington, D.C.

"Both Cliff and I were delighted with the genuine warmness ofour reception with these people," Mr. Goff told NationalUnderwriter. "They were nonbureaucratic in mindset. They were veryforthcoming. They assured us these new proposed regs were not setin stone and they were genuinely interested in learning from theprivate sector."

Mr. Goff, chief executive officer of The Taft Companies, acaptive management firm in Baltimore, Md., added, "They trulywanted our input, and they were open to our input and asked goodquestions." He noted that the meeting, which he expected to last 20minutes, took a full hour and 40 minutes.

While their policy is not to comment on private meetings, AndrewDeSouza, a Treasury spokesman commented, "I will say that therewere a lot of issues discussed and it was a constructive meeting,from what I gather."

The IRS proposal, which caught the captive industry off guard,would reverse a longstanding tax treatment of captive insurers andput them on the same footing as self-insureds.

Unlike insurers, self-insureds are unable to deduct a discountedreserve for estimated losses and expenses, whether or not claimshave been filed. With no prior hint of its plans, the IRS publishedits proposals in the Federal Register on Sept. 28.

Mr. Goff said members of Treasury explained that the motivationbehind the IRS proposal "was to bring continuity to all industrieson the case of consolidation, at the parent level, of allsubsidiary companies."

He explained that the insurance industry "has some specialexceptions on consolidating of various companies within a group ofcompanies--and in some cases some people feel it is a benefit,which it really isn't."

An example brought up by members of Treasury in the meeting, hesaid, was that of a large property owner who happens also to be inthe construction business as well as the construction supplybusiness. "They wondered why [insurance] should be any differentthan this property company?"

His answer, he said, was that under the supply side, "theirinventory is an asset." But for insurers, "supply, as you will, isa liability, and that's a big distinction as to why insurancecompanies have this special exemption."

Mr. Goff added that those at the meeting were "very impressedwith the fact that more than 50 percent of the states in the U.S.have created enabling legislation of captive insurance companies asan economic development initiative--they did not realize it was solarge and had so positively taken root."

He said, "We explained the new regs would have a huge impact onthis new thriving industry, domestically, and would push allcaptive movement back offshore again. And they understoodthat."

The next step, Mr. Goff said, is to prepare a position paperoutlining the effect the proposed regulations would have on thecaptive industry.

This will be accomplished with "a team of certified publicaccountants (CPAs) and tax attorneys and respected people withinthe ART [alternative risk transfer] industry," he said.

The time frame, he noted, is "the sooner the better--this is toppriority for us as a SIIA initiative."