The South Carolina Department of Insurance announced it has joined the Coalition for Fairness to Captive Insurers (CFCI) to help stop a proposed regulation by the Internal Revenue Service it says could harm the captive industry.
The proposal change announced on Sept. 28 would reverse a long-standing 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.
As proposed, the South Carolina department said the IRS revisions would adversely impact a long-standing tax accounting treatment for captives and potentially drive many away from U.S. regulation to offshore domiciles, according to a department news release.
The department said in September when Scott Richardson, director of insurance for South Carolina, learned of the proposed regulatory changes to IRS section 1.1502-13 he recognized the potential impact it could have on South Carolina's growing captive insurance industry.
Mr. Richardson wrote the entire South Carolina Congressional delegation on Oct. 4 urging that they look at the regulation "and do everything in their power to come to the aid of the captive community and help defeat this proposal." Since then he has made personal visits to Capitol Hill to push for fair treatment for captive insurers.
The South Carolina department said a growing number of international and Fortune 500 companies are locating their captive insurance and alternative risk transfer business operations in the state and the firms have said that "this [IRS] proposal will be harmful to our present or future plans."
In response to the proposed regulation the CFCI was formed in late October. The South Carolina department said it has combined its efforts with those of the Vermont Captive Insurance Association (VCIA), Captive Insurance Companies Association (CICA) and more than 40 other captive industry leaders who have pledged money and manpower to fight the measure.
Mr. Richardson said he hopes that all captive associations, captive regulators and companies will join the efforts of the Coalition.
"It is only through a united effort by the entire industry, speaking clearly and with one voice, that we can achieve the attention and education that is needed to make sure this proposal does not adversely affect the gains we have made," he said.
"Captive insurance, when administered by responsible state regulators and professional managers, is good business. We will oppose any measure that will penalize or create disincentives for these companies," he added.
As a member of the Coalition, the South Carolina Department of Insurance said it hopes to not only lend its name but its political acumen, contacts and other resources to the effort.
Mr. Richardson urged "everyone with a stake in this issue–or in the future of a well-regulated U.S. captive industry–to become involved in safeguarding the future of the industry."
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