Representatives of four captive insurance associations saidafter a day of lobbying key members of Congress yesterday that theymade progress fighting a proposed IRS regulation they believe wouldundermine the alternative risk-transfer market.

Members of the group told National Underwriter their mostsignificant meeting was with Senator Max Baucus, D-Mont., chairmanof the Senate Finance Committee, which is the IRS oversightcommittee in the Senate,

During the 40 minute meeting with Sen. Baucus, the group–whichrepresented the Self-Insurance Institute of America, Inc. (SIIA);the Montana Captive Insurance Association, Inc. (MCIA); the SouthCarolina Captive Insurance Association, Inc. (SCCIA); and theCaptive Insurance Council of the District of Columbia (CIC-DC)–gavetheir arguments why the proposed regulations should bewithdrawn.

“I think we put it on the radar screen of members of Congresswho have not had it on the radar screen thus far. We had a veryproductive day overall,” Mike Ferguson, chief operating officer ofSIIA told NU during a conference call following the meetings.

He noted that the group also met with Sen. Jon Tester, D-Mont.;Rep. Dennis Rehberg, R-Mont; the office of Sen. Lindsey Graham,R-S.C.; and the office of Sen. Jim DeMint, R-S.C.

The IRS proposal, which caught the captive industry by surprise,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 adiscounted reserve for estimated losses and expenses, whether ornot claims have been filed. With no prior hint of its plans, theIRS published its proposals in the Federal Register on Sept.28.

John Huth, captive program coordinator for the Montana StateAuditor's Office in Helena, Mt., said they had the attention ofthose they met with. “It's safe to say that our end result was whatwe were looking for today.”

Captive owner Larry Smith, vice president, risk management ofMedStar Health in Columbia Md., and chairman of the CaptiveInsurance Council of the District of Columbia, Inc., said he was“terribly encouraged” by the meeting with Sen. Baucus.

“Clearly it had not been on his radar screen up to this point,”he said. “We put it on his radar screen and gave him a context inwhich we expressed our concerns.” He added, “I had the sense he wasvery interested in following up because he appreciated thetremendous impact the captive world has had on the industry in theU.S.”

John Jones, a captive attorney with Moulton, Bellingham, Longo& Maher in Billings, Mt., and a board member with the MontanaCaptive Insurance Association, Inc., said the ripple effects of theproposed regulation “needed to be put above the radar screen.” Henoted that “shutting down these captives as a result of the taxtreatment, or sending them offshore will have an effect that theIRS does not intend.”

Mr. Smith said, “This is not a fight between us and the IRS.”The hope, he said, is that through discussion “we can make the IRSmore aware of the negative impact this would have on the captiveindustry.”

He added that, “As you know, I come from health care and healthcare is the one industry that has benefited the most from this selfinsurance process.”

The meetings followed several lobbying efforts last week thatincluded the House Ways & Means Committee. “So we have beenvery engaged on Capital Hill to raise this issue,” Mr. Fergusonsaid.

Earlier this week, the Captive Insurance Companies Association(CICA) and the Vermont Captive Insurance Association (VCIA)announced formation of the Coalition for Fairness to CaptiveInsurers (CFCI), to develop a coordinated response to the IRSproposal.

The Vermont Department of Economic Development said in an e-mailtoday that the state's governor, Jim Douglas (R), known for hissupport of the captive industry, “is taking an active leadershipposition in mounting a response to the Treasury Department and issoliciting support from many of the other domiciliary stategovernors.”