Captive Insurance Issues and Trends 2017
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Here is a message that needs to be delivered to all those involved in advising, regulating, or legislating tax policy: captive insurance companies are genuine risk management organizations that add value to their owners.
Tax reform is on the agenda not only in the United States but elsewhere in the world, as well. A report of Oxfam, a global antipoverty agency, has joined those calling for corporate tax reform, and the Bermuda Business Development Agency responded quickly.
Mark Twain (but also attributed to Gideon Tucker) is quoted as having said, "No man's life, liberty or property are safe while the Legislature is in session." This will be especially true when Congress convenes in the new year and considers tax reform. Tax reform was a hot topic during the recent election, and the Republican majority in the House of Representatives is already gearing up to advance some significant changes in Federal tax law.
One of the sections in recent Internal Revenue Service (IRS) Notice 2016-66 that may be of concern to all captives, as well as commercial insurers, is the implication that an 831(b) captive with a loss and loss adjustment expense (LAE) ratio of less than 70 percent may not be an “insurance arrangement.”
Michael Maglaras explains the connection between captive insurance companies underwriting medical professional liability insurance and what happens to you or me when we spend a night in a hospital bed.
The U.S. Court of Appeals for the Ninth Circuit upheld the federal Liability Risk Retention Act (LRRA) preemption status in September 2016 in Attorneys Liability Protection Society, Inc. v. Ingaldson Fitzgerald, P.C., Nos. 13–35115, 13–35172, 2016 U.S. App. LEXIS 17396 (9th Cir. 2016).
According to the National Conference of State Legislatures, “a total of 25 states, the District of Columbia, Guam and Puerto Rico now allow for comprehensive public medical marijuana and cannabis programs. Another 17 states allow the use of low tetrahydrocannabinol (THC), high cannabidol (CBD), products for medical reasons in limited situations or as a legal defense.” An additional four states have 2016 ballot measures to permit medical use for certain conditions, such as cancer and chronic pain.
The Delaware insurance commissioner has approved two "limited and streamlined" application procedures to make it easier for captive insurers to comply with the Protecting Americans from Tax Hikes (PATH) Act.
In 1986, Congress passed the Liability Risk Retention Act (LRRA). This Act allows homogeneous groups to form a risk retention group (RRG) in order to write liability insurance coverage. Its policyholders are the owners.
On September 28, 2016, Senator Mark R. Warner, D-VA, and Representative Richard E. Neal, D-MA, introduced companion legislation in both the Senate (S. 3424) and House of Representatives (H.R. 6270) "to amend the Internal Revenue Code of 1986 to prevent the avoidance of tax by insurance companies through reinsurance with non-taxed affiliates."