Legislative & Regulatory Update

DCIA Fall Forum

Ryan Work

Senior Director, Government Relations

Self-Insurance Institute of America, Inc.

Presentation Overview

1) Political Environment

2) ERC ActivitiesCongress

IRS/ Treasury

3) Advocacy & Outreach

4) Misc. Policy

5) Elections – 2016 & Beyond

Framing the Political Environment

A battle of political wills…

Policy Stagnation

Legislative vs. Regulatory

House vs. Senate

Republican vs. Democrat

IRS Politics

Challenges = Opportunities

Misunderstanding/ Knowledge

Risk Mitigation

Tax Reform/ Tax Avoidance

831(b) - Enterprise Risk Captives

Why a focus on captives?

• Why do you and your clients utilize the 831(b) election?

• What do regulators/ policymakers think you use it?• Regulators/ policymaker concerns:

Small captives are being marketed only to accomplish estate planning/ wealth transfer

Low frequency risks

Tax shelter IRS Dirty Dozen List: Micro captives

Key: Policymaker Education

Congressional Overview

831(b)Legislative Purpose

Farm Mutuals: Increase the written premium threshold of IRC § 831(b) from the current $1.2 million to $2.2. Million

Senate Finance Committee

Original Restrictions:

1) Prohibit use of reinsurance.

2) Limit to 20% of net written premiums to a policyholder in a taxable year.

Introduced

Senate - S. 905 - Calls for U.S. Treasury study on the use of captives as an estate planning tool

• Specific legislative language to address abuse.

House- HR 1788 - Clean threshold increase.

SIIA Actions

ERC Advocacy Working Group

Ongoing Education Outreach

Public Relations

Member Grassroots

Political Support

SIIA Working Group Proposals

SIIA proposes estate planning designs curbs in three key areas:

1) limitations on the use of irrevocable trusts for purposes of estate planning; Exceptions: Trust included in estate/ trust is common owner.

2) limitation on the use of life insurance by 831(b) captives (10% deminimis exception); and

3) sunset provision of 3 years for existing captives.

National Association of Insurance Commissioners (NAIC), mirrors this closely, including:

1) prohibition on the use of an 831(b) captive by irrevocable trusts;

2) agreement with SIIA on the life insurance provision; and

3) sunset provision of 2 years.

JCT 831(b) Specifications

• Joint Committee on Taxation (JCT) proposed broad policy specifications:• Elimination of the 831(b) election if captive is owned by a family relation other than owner

• Same person would have to own both the business and the related captive.

• 5% deminimis exception

• Immediate sunsetting

• While JCT is focused on perceived abuses surrounding estate planning, various policy based solutions put forth would ‘throw the baby out with the bath water’.

JCT Specs - Concerns

• Industry Concerns:1) Usurping of state insurance regulatory authority;

2) Harmful to family owned business, such as farm-mutuals; and

3) Provides only a limited common ownership situation for 831(b) electing captives that would prohibit a great majority of legitimate uses.

Where We Stand…

• General: Critical policy environment

• Congress• JCT• Senate• House• Legislative Vehicle – Tax Extenders

• IRS/ Treasury

• State Regulators

FHLB Legislation

FHLB Actions

Federal Housing Finance Agency (FHFA) proposed a rule to prevent captive membership in the Federal Home Loan Bank (FHLB), changing its definition of an insurance company.

• Definitional change of ‘insurance company’ to include traditional insurance companies but not captive insurers.

• The moratorium date on captive membership in FHLBs expired several months ago. If the FHFA adopts the definition, captive membership would sunset in 5 years.

• More than 1,300 comments filed.

Congressional Response

• HR 3808 introduced to:• Prevent the FHFA from excluding captives from FHLB membership.• Require study of the impact that FHFA membership provisions would have on the FHLB.

Misc. Federal Policy

ACA – Progress & Impacts

FIO –Captive ReinsurersNAIC Fall Meeting Focus

Insurer-owned captivesChanging captive users

Self-Insurance Protection Act (SIPA) S. 775/H.R. 1423Proactive policyHedge Against Possible Rule-Making Action by AdministrationTaft-Hartley/ Private/ Public SectorGrassroots Involvement

Advocacy Outreach

Educate & engage policymakers on benefits of risk management in the captive space.

Strengthen outreach activities.

Build broad coalition of captive managers and others who can tell the story.

Discuss potential risks and unintended consequences of 831(b) restrictions on those using captives for the right reasons.

Clients are critical storytellers.

Political Relationships

Establish policy and political relationships with Members of Congress on key commits of jurisdiction.Senate Finance

House Ways and Means

SIPAC

Policy Education

Need for proactive and unified outreach approach to build industry’s growth.

Positioning industry as a positive policy partner.

Short and long terms strategies.

Work Ahead

Consider how you can engage with your federal policymakers or tell the story of the captives you manage.

Educating federal and state policymakers, and regulators

Be PreparedPolicy environment can both creep along and move incredibly fast when the opportunity arises.

2016 Election Outlook

House246 Republicans, 188 DemocratsNew Speaker, Leadership Dynamics

SenateRepublicans must defend 24 seats, compared with only 10 for DemocratsDemocrats need to add 4-5 seats for majorityWatch the MidwestCoat-tails

Presidential7 Democrats16 Republicans

Industry Tools

Self-Insurance Defense Coalition

• U.S. Chamber of Commerce

• National Association of Manufacturers

• Council of Insurance Agents & Brokers

• National Association of Health Underwriters

• National Retail Federation

• National Franchisee Association

• National Association of Wholesaler-Distributors

• Heating, Air-Conditioning & Refrigeration Distributors International

• National Electrical Contractors Association

Self-Insurance Educational Foundation (SIEF)

• Capitol Hill Briefings

• Industry Studies & Reports

Self-Insurance Political Action Committee

• Supporting federal candidates

Media Outreach Capabilities

• Op-eds

• Expert Interviews

Get Involved

Frame the debate

Meet with policymakers

Educate and tell your story

Comments/Questions

Contact Info:

Ryan Work

800/851-7789

rwork@siia.org