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Captive RRG Legal and Regulatory Environment – CICA Conference

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Captive RRG Legal and Regulatory Environment

The Captive RRG Legal symbol
Wikimedia Commons – howtostartablogonline.net

Captive RRG Legal and Regulatory Environment – I actually attended five different sessions on Day Two of the conference.   There was a common theme to two of the sessions.  This article will be a combo article of that  theme.

Captives and RRG’s  have always drawn the attention of regulators and taxing authorities- (not always deservedly so).   These two sessions covered the recent and upcoming legal and tax changes

  • Legal and Regulatory Update for Risk Retention Groups (RRG’s)
    • Presenters-Sandra A. Bigglestone CPA, CFE, CPM Director of Captive Insurance State of Vermont;  Pamela E. Davis Founder and CEO Alliance of Nonprofits for Insurance, RRG;  Robert H. Myers, Jr. Partner Morris, Manning & Martin, LLP ; John Svoboda President National Home Insurance Company(RRG)
  • New Developments in State and Federal Income Taxes and how they may Impact Captive Strategies
    • Presenters-Rick Irvine PwC Bermuda,;Tom Jones, McDermott, Will & Emery LLP;        P. Bruce Wright, Sutherland,  Asbill & Brennan, LLP

Risk Retention Groups

Risk Retention Groups (RRGs) are alternative risk transfer entities created by the federal Liability Risk Retention Act (LRRA).  RRG’s are basically specialized insurance companies where the policyholders are also stockholders.

The upcoming, new, and changes to existing RRG accreditation requirements can be found at this NAIC webpage.   The NAIC seems to be stepping up their regulation of RRG’s.

There is a concerted effort to amend the LRRA to include modernizing the Act.

Many State Insurance Commissioners have actually fought against RRG’s and even took the opposing views in lawsuits against RRG’s.

A.M. Best study showed that RRG’s have better loss ratios than traditional commercial insurance.

Only four RRG’s have $100+ million in capital.  Most RRG’s are actually smaller than the perception of these huge pools of money.

 New Developments- State/Federal Income Taxes

Picture of Captive RRG Legal man playing jenga
(c) 123rf.com

This was a very heavily attended session even though it was the last one of the conference.    The IRS included 831 (b) Captive designations as on their list of the “dirty dozen” for tax abuse.

IR 2015-19-(one can see why the IRS became concerned with 831 (b) captives)

  • Poorly drafted insurance binders and policies to cover ordinary business risks or esoteric, implausible risks for exorbitant premiums while maintaining their economical commercial coverage with traditional insurers  – (double dipping?)
  • Underwriting or actuarial support for insurance premiums either missing or insufficient  (no documentation?)

The new proposed legislation enacted a cap of 2.2 million on 831(b) captives which was a great turn of events.  However, no one policyholder can have more than 20% of the direct written premium.   The one very odd requirement is that none of the risks can be insured with reinsurance.

There is a new draft of proposed legislation that leaves the $2.2 million cap in place and removes the 20%  limit along with the no reinsurance requirement.

The Rent-A-Center and Securitas Holding cases were hallmark cases for captives which prevailed in court against the IRS.

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James Moore

Raleigh, NC, United States

About The Author...

James founded a Workers’ Compensation consulting firm, J&L Risk Mgmt Consultants, Inc. in 1996. J&L’s mission is to reduce our clients’ Workers Compensation premiums by using time-tested techniques. J&L’s claims, premium, reserve and Experience Mod reviews have saved employers over $9.8 million in earned premiums over the last three years. J&L has saved numerous companies from bankruptcy proceedings as a result of insurance overpayments.

James has over 27 years of experience in insurance claims, audit, and underwriting, specializing in Workers’ Compensation. He has supervised, and managed the administration of Workers’ Compensation claims, and underwriting in over 45 states. His professional experience includes being the Director of Risk Management for the North Carolina School Boards Association. He created a very successful Workers’ Compensation Injury Rehabilitation Unit for school personnel.

James’s educational background, which centered on computer technology, culminated in earning a Masters of Business Administration (MBA); an Associate in Claims designation (AIC); and an Associate in Risk Management designation (ARM). He is a Chartered Financial Consultant (ChFC) and a licensed financial advisor. The NC Department of Insurance has certified him as an insurance instructor. He also possesses a Bachelors’ Degree in Actuarial Science.

LexisNexis has twice recognized his blog as one of the Top 25 Blogs on Workers’ Compensation. J&L has been listed in AM Best’s Preferred Providers Directory for Insurance Experts – Workers Compensation for over eight years. He recently won the prestigious Baucom Shine Lifetime Achievement Award for his volunteer contributions to the area of risk management and safety. James was recently named as an instructor for the prestigious Insurance Academy.

James is on the Board of Directors and Treasurer of the North Carolina Mid-State Safety Council. He has published two manuals on Workers’ Compensation and three different claims processing manuals. He has also written and has been quoted in numerous articles on reducing Workers’ Compensation costs for public and private employers. James publishes a weekly newsletter with 7,000 readers.

He currently possess press credentials and am invited to various national Workers Compensation conferences as a reporter.

James’s articles or interviews on Workers’ Compensation have appeared in the following publications or websites:

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