Vermont furthered itself as the gold standard for financial services and insurance industries with the signing of H.719 into law on Thursday, May 17. This legislation allows for the creation of an “affiliate reinsurance company” and allows for a more favorable reinsurance alternative for U.S. companies that conduct business offshore.
This legislation capitalizes on an opportunity created by the recent changes to the Federal Tax Code, which created the Base Erosion Anti-Abuse Tax (BEAT) on reinsurance ceded to offshore affiliates. As a result, more than $35 billion previously in offshore jurisdictions will now be looking for a home in the U.S. to avoid this tax. Vermont acted quickly to ensure the state was able to support these businesses with the passing H.719, which creates the financial structures and regulatory environment to accommodate them in Vermont.
“Vermont has been a leader when it comes to financial services, particularly for those in the insurance industry,” said Governor Phil Scott. “With our highly sophisticated industry leaders and robust regulatory standards, this development is yet another step in our collaborative effort to make Vermont a destination for the reinsurance industry. By leading in this area, we can attract more businesses and organically grow Vermont’s insurance premium tax revenue, as well as create new well-paying jobs.”
“The industry approached us with a need for an onshore alternative,” said David Provost, Deputy Commissioner of Captive Insurance. “The imposition of BEAT taxes at the federal level gave Vermont the opportunity to position itself as a destination for reinsurance dollars previously ceded offshore. The new financial and regulatory structures created by H.719 are essential to these efforts.”
“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,” said Commissioner of Financial Regulation Michael Pieciak. “Thanks to our strong team and partners, Vermont is a global leader in captive insurance. With the passage of H.719, we hope to bring our Gold Standard reputation to bear on the reinsurance market as well.”
The bill, which the Governor signed into law at the Department of Financial Regulation’s inaugural industry roundtable in Burlington earlier this month, goes into effect on July 1, 2018.