A new captive insurance company created by Vermont in response to US tax reform will provide an onshore reinsurance alternative for companies facing added tax burden due to the Base Erosion Anti-Abuse Tax (BEAT), according to an A.M. Best briefing.
The briefing shows that a new captive type, referred to as an affiliated reinsurance company, is being marketed as an alternative for US companies that have been reinsuring to an offshore affiliate to avoid US corporate taxes.
A.M. Best said that this would “likely further enhance Vermont’s standing as a captive domicile industry”.
Additionally, insurers would receive a $200,000 cap on state premium taxes, as well as the ability to avoid the 1 to 4 percent excise tax imposed on premiums paid to overseas insurers.
Affiliated reinsurance companies will be subject to most of the laws and regulations under the National Association of Insurance Commissioners, but will be licensed and regulated by the Vermont Captive Insurance Division.
Any net operating losses from offshore affiliates that make the section 953(d) election under the US tax code are usually unavailable to offset income of other members of the same consolidated group, the briefing said that this tax disadvantage would “presumably” not exist for the new captive type.
While no affiliated reinsurance companies have been licensed yet, the briefing explained that a number of companies have “expressed interest” and the legislation seems to give “broad discretion to the state’s insurance regulator to permit flexibility in capital requirements and investments”.
A.M. Best said it would “view an affiliated reinsurance company similarly to other affiliated reinsurers”.
“For its analysis of risk-adjusted capitalisation, A.M. Best would expect any rated insurers using an affiliated reinsurance company to provide US statutory financials consistent with the reporting requirements of the ceding affiliate.”