Representatives of four captive insurance associations said after a day of lobbying key members of Congress yesterday that they made progress fighting a proposed IRS regulation they believe would undermine the alternative risk-transfer market.

Members of the group told National Underwriter their most significant meeting was with Senator Max Baucus, D-Mont., chairman of the Senate Finance Committee, which is the IRS oversight committee in the Senate,

During the 40 minute meeting with Sen. Baucus, the group–which represented the Self-Insurance Institute of America, Inc. (SIIA); the Montana Captive Insurance Association, Inc. (MCIA); the South Carolina Captive Insurance Association, Inc. (SCCIA); and the Captive Insurance Council of the District of Columbia (CIC-DC)–gave their arguments why the proposed regulations should be withdrawn.

“I think we put it on the radar screen of members of Congress who have not had it on the radar screen thus far. We had a very productive day overall,” Mike Ferguson, chief operating officer of SIIA 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 and put them on the same footing as self-insureds.

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

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

Captive owner Larry Smith, vice president, risk management of MedStar Health in Columbia Md., and chairman of the Captive Insurance 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 in which we expressed our concerns.” He added, “I had the sense he was very interested in following up because he appreciated the tremendous impact the captive world has had on the industry in the U.S.”

John Jones, a captive attorney with Moulton, Bellingham, Longo & Maher in Billings, Mt., and a board member with the Montana Captive Insurance Association, Inc., said the ripple effects of the proposed regulation “needed to be put above the radar screen.” He noted that “shutting down these captives as a result of the tax treatment, or sending them offshore will have an effect that the IRS 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 IRS more aware of the negative impact this would have on the captive industry.”

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

The meetings followed several lobbying efforts last week that included the House Ways & Means Committee. “So we have been very engaged on Capital Hill to raise this issue,” Mr. Ferguson said.

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

The Vermont Department of Economic Development said in an e-mail today that the state's governor, Jim Douglas (R), known for his support of the captive industry, “is taking an active leadership position in mounting a response to the Treasury Department and is soliciting support from many of the other domiciliary state governors.”

Special Reports /

Captive Groups Battle IRS Reg On Capitol Hill

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