www.captiveinternational.com EDITOR’S LETTER 3
831(b) blues and
new captive structures
Owen Faulkner, editor, Captive International
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Captive International – ISSN
ust like the infamous Avrahami v Commissioner that came before it,
the Reserve Mechanical v Commissioner case has generated a lot of
buzz around the legitimacy of certain small captive structures.
Judge Kerrigan had ruled that Reserve Mechanical’s risk pool entity,
Pool Re Insurance, operated by Capstone Associated Services, was not a “bona
fide insurance company” because it did not distribute risk.
There are also concerns over whether this second IRS victory may end up
harming legitimate small captives—such as those that make the 831(b)
election—as they come under further scrutiny.
In this issue, we feature in-depth analysis into what went wrong in this case,
along with insight into the problem transactions, coverages or structures.
In the last month Captive International flew out to Bermuda for the Bermuda
Captive Conference 2018, and we reported live from the event.
The conference featured a range of topics, from insurtech, cyber and climate
change to concerns over diversity in the industry. Perhaps most interesting
were the increasingly innovative ways captives are now being used, for example
managing risk associated with M&A deals and unique ways captives can leverage
their excess capital. There is a special section in this issue reporting on the event.
Ahead of the Vermont Captive Insurance Association’s annual conference
next month, Captive International speaks with Sandy Bigglestone, the state’s
director of captive insurance, about some relatively new legislation that has been
introduced as an alternative to offshore reinsurance.
The introduction of these new captive structures—affiliated reinsurance
companies—provides a new alternative to US insurance companies to avoid
the substantial tax burden from Base Erosion Anti-Abuse Tax (BEAT) provisions
included in the Trump administration’s tax reforms.
Captive International will be attending VCIA’s conference in August and reporting
live from the event.
Also in this issue: Phil Giles of QBE North America looks at how corporates can
fund layers of medical stop loss coverage through a captive, along with how these
structures can enhance cash flow management and enterprise risk management.
Matthias Helmbold of MAXIS GBN analyses market scalability and challenges
in healthcare and employee benefits captives; and Tatjana Winter at the
BlockART Institute speaks with captive insurance market participants who
present uses cases where they have dealt with blockchain concepts using