The Dodd-Frank financial reform act passed in 2010 was never intended to be applied to the captive insurance industry, wrote former U.S. Rep. Judy Biggert, R-Ill., the outgoing chairman of the House Subcommittee on Insurance, in a recent letter to the subcommittee's new leaders.
Biggert's Dec. 18 letter, which was just recently made public, was addressed to incoming chairman Rep. Jeb Hensarling, R-Texas, and ranking member Maxine Waters. In it, Biggert wrote that several states have misinterpreted the Nonadmitted and Reinsurance Reform Act, which is part of the Dodd-Frank Act, and have created confusion among captives about new tax requirements.
"As a supporter of NRRA and an advocate for its inclusion and passage as part of Dodd-Frank, I can tell you unequivocally that the NRRA was never intended to include the captive insurance industry," Biggert wrote. "[NRRA] was intended to create certainty in the tax treatment and regulation of the surplus lines and in the reinsurance industry. Despite this very specific purpose, a couple of states are misinterpreting the application of NRRAs definition of 'non-admitted.'"
Biggert told Hensarling and Waters the NRRA portion of the Dodd-Frank Act may need a technical amendment to provide more clarity to states on how it should be applied.
"Captive insurance companies serve a vital role in the financial services industry and it is important that their industry not be negatively impacted by an incorrect interpretation of congressional record," Biggert said.
Without legislative language clarifying the NRRA, the captive industry is worried captives could face additional taxation under the law. Some in the industry are so concerned they have decided to delay plans to put new business in their existing captives, said Richard Smith, president of the Vermont Captive Insurance Association.
Efforts to reach spokesmen for Hensarling and Waters for comment were not immediately successful.
Biggert's letter has garnered support from captive insurance industry supporters, many of whom said state regulators needed more clarity about how the NRRA should be applied.
In Vermont, the nation's captive insurance capital, the Vermont Captive Insurance Association has formed a coalition, dubbed the Coalition for Captive Insurance, to push for increased clarity on how the Dodd-Frank Act should affect captives, if at all.
"This letter from Rep. Biggert is a clear indication of Congress intent not to include the captive insurance industry in NRRA," Smith said.
The coalition has received support in its effort to clarify the NRRA from Daniel Towle, director of financial services at Vermont's Department of Economic Development. "A few domiciliary states and opportunistic service providers are clearly exploiting the present situation, which is not in the best interest of their clients or the industry as a whole," Towle said in a statement.