Vermont Governor Phil Scott has signed new legislation into law that strengthens the state’s financial services industry by allowing insurers to form affiliated reinsurance companies.
The law provides companies affected by the recent imposition of the Base Erosion Anti-Abuse Tax (BEAT) on reinsurance ceded to offshore affiliates with an onshore affiliated reinsurance alternative.
A provision included in the US Tax Reform, BEAT will impact companies doing business internationally and is intended to ensure that companies doing business in the US pay a minimum level of tax.
BEAT is expected to substantial impact the feasibility of offshore affiliated reinsurance arrangements.
Vermont’s new law provides a solution by offering a more favourable reinsurance alternative for US companies conducting business in offshore jurisdictions that are faced with a significant new tax burden.
Governor Scott said he was proud of the quick and collaborative work done by the state to pass the bill.
He added: “This bill represents our state’s ability to adapt quickly to regulatory changes in support of this industry.”
“Vermont’s financial services industry is highly sophisticated, and our team of captive insurance professionals is well-equipped to regulate these types of complex transactions.”
According to David Provost, deputy commissioner of captive insurance, the new law was impacted by the needs of the industry.
Provost: “The industry approached us with a need for an onshore alternative. It’s something we’ve been considering for some time, but the imposition of BEAT taxes on foreign reinsurance made the timing critical.”
“These companies are akin to a hybrid between captives and traditional insurance. Like captives, they will be limited to reinsurance of affiliates, but they will be regulated in accordance with National Association of Insurance Commissioners accreditation standards like a commercial reinsurer would be.”
Director of financial services Ian Davis commented: “In the wake of recent federal tax changes, we quickly identified an opportunity for Vermont as it pertains to offshore reinsurance transactions.”
“Because of Vermont’s scale and the close working relationship we have with our state legislature, we were able to capitalize on being the first state to provide this type of reinsurance alternative.”