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Captive Insurance Emerging Issues Focus of September CICR

September 07, 2016

The lead article in the September 2016 issue of Captive Insurance Company Reports (CICR), titled "The Telehealth Revolution and Captives," provides a firsthand look into how the expanding use of telemedicine works across state lines and the complexities associated with the multiple layers of regulation.

The article is written by Karen Byank Mathura, RN, JD, CPHRM, CLCS, claims and risk management consultant at RCM&D, Inc., and Lauren Bicknese, BBA, CLCS, risk and claims coordinator, RCM&D, Inc. RCM&D, Inc.,  provides insurance brokerage, strategic insurance consulting, risk management, and employee benefits services. Both authors have extensive healthcare credentials and experience.

The article details why Ms. Mathura and Ms. Bicknese conclude the following: "By utilizing a captive insurance program to broadly cover and expand with this new risk profile, telemedicine vendors and providers can be more creative and forward thinking while insuring themselves and their combined groups from telemedicine-liability exposure and harm." The authors indicate they are unaware of any telemedicine-specific captive.

Readers of the September issue of CICR will learn more about how the Internal Revenue Service (IRS) has restructured the focus of its audit program from large taxpayers. According to Tom Jones, McDermott Will & Emery LLP, author of the article titled "IRS Announces 'Campaign' Against Captives," the new direction is an issue-focused, coordinated attack that he describes as a "campaign" approach. One of the campaigns is captive insurance. Mr. Jones describes the effect of this new focus on captives and their owners in this new development.

CICR Editor Emeritus Hugh Rosenbaum reviews a Captive Insurance Companies Association (CICA) 2016 International Conference regulatory panel discussion on the principles laid out by the International Association of Insurance Supervisors and the relationship of those principles to captives ("regulated insurers").

The article discusses the Own Risk and Solvency Assessment (ORSA), which Mr. Rosenbaum opines is the inevitable future assessment technique. ORSA is a "formula-based risk assessment that involves underwriting, credit, and asset risks," as described by the panel discussion's audience. A useful chart that compares Solvency II, Bermuda's version of ORSA regulation, and the National Association of Insurance Commissioners ORSA regulatory framework is included in the article.

While there is currently no existing captive that qualifies for ORSA compliance, the questions asked and responses of the CICA program attendees, as reported in the article, provide CICR readers with insights into the probable future direction of regulation of captives.

Members of the tax department at the law firm of Sutherland Asbill & Brennan LLP review the details and importance of a recent decision of the New York State Division of Tax Appeals of whether a premium paid to a captive is a valid deduction for purposes of determining the corporation franchise tax. The case involved Stewart's Shops Corporation and its captive, Black Ridge Insurance Corporation.

The September issue also includes an excellent article in which Gerald Yoshida provides a historical look back at Hawaii’s first 30 years as a captive domicile. Mr. Yoshida, a Hawaii attorney, has been involved in Hawaii captives since the state's captive insurance enabling legislation was passed in 1986 and became effective in July 1987. At that time, Hawaii was only the fifth captive domicile in the United States.

This month's issue of CICR wraps up with an editorial, "Thoughts on Brexit," by Mr. Rosenbaum and with an article by Don Riggin that discusses using net cash flows as one way to measure the value of a captive.

See a complete list of the September 2016 CICR headlines, with links for subscribers, or find out how to subscribe to CICR if you don't already.

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