20 July 2023news

IRS holds Micro-captive hearing

The Internal Revenue Services (IRS) has held a public hearing over its proposed regulation that would affect micro-captives, with Oklahoma’s captive insurance director Steve Kinion being one of six speakers at the event.

Kinion told the hearing that the Notice of Proposed Rulemaking (NPR), if passed, would directly impact states like Oklahoma, which was hit by a major terrorist attack in 1995 when a massive bomb was set off in Oklahoma City.

According to Kinion the NPR’s consequences are contrary to the Terrorism Risk Insurance Act (TRIA). He explained that: “One of the TRIA’s purposes is to encourage the coverage of terrorist risks by private insurance so that businesses do not need to rely upon federal assistance as was the case following the 1995 bombing. The NPR is simply a disincentive to insure terrorism risks through a captive insurer.”

In addition he said that Oklahoma partially funds its firefighter and policy pensions from taxes paid by captive insurers domiciled in the state. The consequences of the proposal’s adoption will be the formation of fewer captive insurers and some will dissolve. This results in fewer taxes paid to the pension systems.”

Other speakers at the hearing also spoke of the detrimental impact of the NPR on captive insurance and the reinsurance market as a whole. Matthew Queen, owner of the Queen Firm, pointed out that the re/insurance market is now the hardest that it’s been so far this century and that high insurance rates have been driving a high rate of captive formation. He said that the NPR could impact this captive formation and that the NPR itself was unconstitutional.

The IRS said that it welcomed all comments and that it would take these into account for its eventual final decision on the NPR.