Law firm Anderson, Kill & Olick (AKO) is throwing its weight behind declarations that the Non-admitted and Reinsurance Reform Act (NRRA) does not apply to captives.
The firm has published a white paper stating that the ambiguity in the NRRA’s wording, if not clarified, could result in unnecessary litigation, inconsistent rulings, and waste of both private and public resources.
In a statement, Phil England, head of the alternative risk and captive insurance services practice group at AKO, said: “A strong case can be made that the NRRA does not apply to captive insurance and an even stronger case can be made that the NRRA was not intended to apply.”
“Bottom line, captives should not have to move from a domicile because of the NRRA. Congress should amend the law to make clear that the NRAA does not apply to captive insurance companies. In the meantime, the prudent course is to wait for further clarification and not re-domesticate from one state to another solely based on this statute.”
England explained that legislative intent is very significant in interpreting how a law should be implemented, and that it is also an important factor in how courts will rule when litigation occurs.
“The clarifying statements by two primary architects of the NRRA—former subcommittee chair, Judy Biggert and congressman Scott Garrett of New Jersey—are significant in this regard. Those statements clearly indicate that it goes against the intent of the NRRA to levy self-procurement taxes on 100 percent of the premiums paid to a captive by a ‘home-state’ policyholder that has material risks located outside of that state.”
England concluded that the passage of the NRRA could not have been meant to eradicate years of existing tax treatment or US Supreme Court rulings regarding state taxation of captive insurance companies.
“Congress, in its haste to insert a minor provision aimed at surplus lines insurance into the already unwieldy Dodd-Frank Act, inadvertently upended one of the organising principles of the captive insurance world—regulation and state taxation by the captive’s domicile.”
“States that try to apply the NRRA to captive insurance companies are likely to face litigation."
In response to the NRRA, the Vermont Captive Insurance Association (VCIA) formed the Coalition for Captive Insurance Clarity (CCIC), in November last year.
The CCIC welcomes industry members to join in the effort to amend the law, and will work with members of US Congress to make the necessary changes.
The Tennessee Captive Insurance Association joined the CCIC in February.
