NAIC Investigates Captives On A Whim?
The article seems to refer to captives as shadow companies. This flies in the face of various states that are ramping up their marketing efforts to be the domiciles for various captives. The list of states that can domicile captives are:
- New York
- Rhode Island
- South Carolina
- South Dakota
- West Virginia
The list points out that almost 50% of the US functioning as a possible domicile for onshore captives. The IRS has already ruled (see post)that captives do not violate the tax laws in any way. I have consulted with captives often over the last few years. If a majority of the states want to domicile captives, would one not assume the states have examined captives very thoroughly?
From the article – NAIC’s Executive Committee and plenary voted unanimously to adopt the new charge for the Financial Condition Committee. The committee will study insurers’ use of captives and special purpose vehicles to transfer third-party insurance risk in relation to existing state laws and regulations. If the study turns up any concerns, the committee will recommend possible modifications to existing NAIC model laws or the creation of a new model law.
What I find astounding is that the New York Times would call captives shadow insurance. The NAIC is basically responding to the article. It is sensationalism at best. Most of the insurance industry has “shadow” elements. I think the NAIC’s time could be spent better elsewhere.
This author from CFO World forecasted that this would happen. This is the NY Times article on captives that started all the hubbub. I think this can be summed up with a comment from Vermont’s Captive overseer as quoted in the NY Times –
David F. Provost, the deputy commissioner of captive insurance in Vermont, said he believed confidential treatment was appropriate because these entities were, in essence, insurance companies with only one policyholder — their parent. He said Vermont’s large and experienced staff of regulators vetted all transactions carefully to make sure they were sound.
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