NU Online News Service, Oct. 17, 2:38 p.m.EDT

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Owners of captive insurers concerned that they need to relocatetheir captive because of Nonadmitted and Reinsurance Reform Act(NRRA) requirements can now rest easy, according to a white paperon the subject.

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The new federal law, part of the Dodd Frank Act, has noapplicability to captive insurance, concludes an independent whitepaper prepared commissioned by the Vermont Captive InsuranceAssociation (VCIA) by the law firm of McIntyre and Lemon, PLLC ofWashington, D.C.

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“If you had, or did not have a surplus lines or self-procurementtax issue before Dodd Frank, it didn't change anything,” DaveProvost, Deputy Commissioner of Captive Insurance tells NU OnlineNews Service. “It didn't change the state's laws on the taxation ofcaptive premiums.”

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He adds, “If somebody is telling you to change now, I think I'dbe asking 'Why didn't you tell me this last year, or 10 yearsago?'”

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Some of the misunderstanding, he explains, is that people were“panicking that they needed to move their captive to theirbusiness' home state to avoid self-procurement tax. But if itdidn't apply before, it doesn't apply now.”

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Provost says, “Both the language of the legislation itself andthe legislative intent are clear that the law was meant to applyonly to the surplus lines market—not captive insurance.”

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A consortium of the VCIA, the Captive Insurance CompaniesAssociation and the National Risk Retention Association agreed withthe conclusion of the white paper. “There was no intent tohave NRRA encompass captive insurance,” says Rich Smith, presidentof the Vermont Captive Insurance Association.

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Dan Towle, Vermont's director of Financial Services, tells NU,“There has been quite a bit of misinformation on thetopic. Certain states are using this as an opportunity to tryto bring captives to their state and generate new taxrevenue. It is our position that when you have read the whitepaper and analyze the NRRA that it is clear that this is notapplicable to captives.”

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This misinformation, he says, “does a disservice to the captiveinsurer and to the industry.”

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The white paper analyzed Congressional legislative intent,quoting from the chief bill sponsors, and determined the focus ofthe bill is on surplus lines of insurance, according to the Stateof Vermont.

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Based on the analysis and the language of the NRRA itself,the white paper concludes:

  • Captive insurers should not be subject to the NRRA'snonadmitted insurance provisions because they are not placingnonadmitted insurance within the meaning of the NRRA.
  • The NRRA did not change the application of stateindependently-procured insurance laws, nor should it restrict thecollection of premium taxes paid for independently-procuredinsurance to the “home state” of the insured, as it does fornonadmitted insurance.

Towle notes, “It is prudent for captive insurance companiesto seek counsel from their attorneys, tax advisors and captivemanagers if they have questions on the applicability of selfprocurement taxes.”

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He adds, however, that “Generally speaking, if you have beenadvised that self-procurement taxes were not applicable before theNRRA, they would not be applicable now. The NRRA itself didnot create any new taxes.”

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The white paper can be read in its entirety at www.VermontCaptive.com/DoddFrank.

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