Title: NEVADA CAPTIVE INSURANCE ASSOCIATION
1NEVADA CAPTIVE INSURANCE ASSOCIATION
- REDOMESTICATION OF CAPTIVES
- INTO NEVADA
- CLARK COUNTY LIBRARY
- LAS VEGAS, NEVADA
- FEBRUARY 24, 2006
- P. BRUCE WRIGHT, ESQ.
- PARTNER
- LeBOEUF, LAMB, GREENE MacRAE LLP
2REDOMESTICATION OF CAPTIVES
- BACKGROUND
- REASONS TO REDOMESTICATE
- TYPES OF OPERATIONS
- TAX ISSUES
- STRUCTURES ALTERNATIVES
- GENERAL BUSINESS ISSUES
- REGULATORY ISSUES
- CORPORATE ISSUES
- GROUP CAPTIVES
3REASONS TO REDOMESTICATE
- GEOGRAPHIC
- DECISION TO MOVE ONSHORE
- PATRIOTIC
- TRIA
- OTHER (NOTE TRAPPED LOSSES)
- PROVISIONS IN STATE LAW
- LLC CAPTIVE (REITS)
- NOT-FOR-PROFIT PROVISIONS (CHARITY)
- RENT-A-CAPTIVE
4REASONS TO REDOMESTICATE
- REGULATORY CONCERNS
- DOMICILE MAY CHANGE ITS POSITION ON TYPE OF
BUSINESS - DECISION TO INCREASE/DECREASE UNRELATED BUSINESS
5TYPES OF OPERATIONS
- TERMINOLOGY
- FOREIGN
- ALIEN
- FOREIGN CAPTIVE INSURANCE COMPANY
- FOREIGN SPONSORED CAPTIVE
- FOREIGN CELL
6TYPES OF OPERATIONS
- ALIEN CAPTIVE INSURER
- ALIEN CAPTIVE INSURER WITH DOMESTIC (IRC 953(d)
ELECTION - ALIEN CAPTIVE INSURER WITH ENGAGED IN TRADE OR
BUSINESS ELECTION (IRC 953(c)(3)(C)) - ALIEN CELL
7STRUCTURE ALTERNATIVES
- MERGER
- CORPORATE ENTITY MOVES WITH ALL ATTENDANT ASSETS
AND LIABILITIES - ASSUMPTION REINSURANCE
- CEDANT AGREES TO LOOK ONLY TO NEW CAPTIVE AND
RELEASE OLD CAPTIVE - OLD CAPTIVE CEDES RESERVES AND RISK PREMIUM TO
NEW CAPTIVE - REINSURER RELEASED BY OLD CAPTIVE AND AGREES TO
PAY TO NEW CAPTIVE
8STRUCTURE ALTERNATIVES
- ASSUMPTION REINSURANCE
- OLD CAPTIVE IS LEFT WITH CAPITAL AND TRADE
LIABILITIES - OLD CAPTIVE IS LIQUIDATED
- RUN OFF OF OLD CAPTIVE
- OLD CAPTIVE IS MAINTAINED AND RUNS OFF EXISTING
BOOK OF BUSINESS
9STRUCTURE ALTERNATIVES
- RUN OFF OF OLD CAPTIVE
- REINSURANCE (WITH CONTINGENT PROFIT COMMISSION)
- THIRD PARTY
- NEW CAPTIVE
- FORMATION OF NEW CAPTIVE WHICH INSURES/REINSURES
ALL NEW BUSINESS
10BUSINESS CONSIDERATIONS
- MERGER
- UTILIZATION OF EXISTING CAPITAL
- COMPARATIVE REDUCTION OF ONGOING EXPENSE
- LIKELY NOT AVAILABLE IF EXISTING OPERATION IS A
CELL OR SPONSORED CELL - ASSUMPTION REINSURANCE
- MAY REQUIRE INFUSION OF CAPITAL
11BUSINESS CONSIDERATIONS
- ASSUMPTION REINSURANCE
- MAY NOT BE PRACTICAL IF CONSENTS ARE NOT
AVAILABLE FROM ALL INSUREDS - DIRECTORS OFFICERS
- UNRELATED BUSINESS
- OTHER
12BUSINESS CONSIDERATIONS
- RUN OFF OF OLD CAPTIVE
- MOST FLEXIBLE
- ADDITIONAL CAPITAL NECESSARY FOR LONG TERM
- ADDITIONAL EXPENSE
- MANAGEMENT
- ACTUARY
- ACCOUNTING
13FOREIGN (U.S.) CAPTIVE
- STRUCTURES
- MERGER, ASSUMPTION REINSURANCE AND RUN OFF
CAPTIVE ARE ALL GENERALLY AVAILABLE - MERGER
- FEDERAL TAX ISSUES
- STRUCTURE AS A TAX-FREE REORGANIZATION (USUALLY A
STATUTORY MERGER) - REDOMESTICATION (F REORG)
- GENERALLY NO U.S. FEDERAL TAX IMPLICATION
14FOREIGN (U.S.) CAPTIVE
- STRUCTURES
- MERGER, CONT
- REGULATORY ISSUES
- CONSENT IN JURISDICTION OF OLD CAPTIVE (OC)
- FILING WITH INSURANCE DEPARTMENT OC
- FINAL REPORTS, TAX RETURNS IN OC
- FORMATION OF NEW CAPTIVE (NC) IN NEVADA
OUTLINING BUSINESS PLAN, PROPOSED MERGER, ETC.
15FOREIGN (U.S.) CAPTIVE
- STRUCTURES
- MERGER, CONT
- CORPORATE ISSUES
- PLAN OF MERGER
- APPROVAL BY BOARDS OF OC AND NC
- FILING OF CERTIFICATE OF MERGER IN BOTH OC AND NC
JURISDICTIONS - FILING OF APPROVAL OF INSURANCE DEPARTMENTS
(SOMETIMES)
16FOREIGN (U.S.) CAPTIVE
- STRUCTURES
- ASSUMPTION REINSURANCE
- TAX ISSUES
- MAY BE TREATED AS TAX-FREE REORGANIZATION, SEE
PVT LTR RULS. 9541025, 9335045 - STRUCTURED AS A REINSURANCE TRANSACTION
17FOREIGN (U.S.) CAPTIVE
- STRUCTURES
- ASSUMPTION REINSURANCE
- REGULATORY ISSUES
- CONSENT IN OLD CAPTIVE JURISDICTION
- APPROVAL IN NEVADA IN CONNECTION WITH FORMATION
OF NEW CAPTIVE - LIQUIDATION OF OLD CAPTIVE
- CONSENTS BY ALL INSUREDS
- CONSENTS BY MULTIPLE JURISDICTIONS IF DIRECT
BUSINESS
18FOREIGN (U.S.) CAPTIVE
- STRUCTURE
- RUN OFF OF OLD CAPTIVE
- REGULATORY ISSUES
- RUN OFF OF OLD PROGRAM
- ASSUMPTION REINSURANCE WITH THIRD PARTY
- COMMUTATION
- CORPORATE ISSUES
- FORMATION OF NEVADA ENTITY
- LIQUIDATION OF OLD ENTITY (ULTIMATE)
- ESTABLISHMENT OF ELIMINATION OF LIABILITIES
- ASSUMPTION/COMMUTATION
19FOREIGN (U.S.) CAPTIVE
- STRUCTURE
- RUN OFF OF OLD CAPTIVE
- TAX ISSUES
- PROFIT OR LOSS IN NEW ENTITY CONSOLIDATED
- REGULATORY ISSUES
- NOTIFICATION IN OC JURISDICTION OF CESSATION
- FORMATION OF NEW CAPTIVE
- CAPITAL
- NEW POLICIES
- NEW PROGRAMS
- REINSURANCE OF OLD PROGRAMS(?)
20FOREIGN (U.S.) CAPTIVE
- REDOMESTICATION
- MOVEMENT OF CORPORATE ENTITY
- REQUIRES COMAPRABLE LOCAL LAW
- TREATED AS AN F REORGANIZATION FOR TAX PURPOSES
21FOREIGN (U.S.) SPONSORED CAPTIVE OR CELL
- STRUCTURES
- MERGER (NOT AVAILABLE)
- ASSUMPTION REINSURANCE
- RUN OFF
22ALIEN (NON-U.S.) CAPTIVE
- STRUCTURAL ISSUES
- MERGER
- REDOMESTICATION
- ASSUMPTION REINSURANCE
- RUN OFF
23ALIEN (NON-U.S.) CAPTIVE
- MERGER
- ADDITIONAL REQUIREMENTS OF FOREIGN JURISDICTION,
e.g., BERMUDA PUBLICATION ISSUES - STATUTORY MERGER PER TREAS. REG.
1.368-2(b)(1)(ii) IF STATE LAW ALLOWS - STATUTORY MERGER MAY NOT BE AVAILABLE
- B REORGANIZATION (EXCHANGE OF STOCK FOR STOCK,
ACQUIRING COMPANY OBTAINS CONTROL)
24ALIEN (NON-U.S.) CAPTIVE
- MERGER
- STATUTORY (CONT)
- C REORGANIZATION (EXCHANGE OF STOCK FOR
SUBSTANTIALLY ALL OF THE PROPERTIES) - D REORGANIZATION (TRANSFER OF ASSETS TO ANOTHER
CORPORATION, AFTER WHICH TRANSFEROR OR TRANSFEROR
SHAREHOLDER IS IN CONTROL, IF ASSETS OF ACQUIROR
ARE TRANSFERRED PURSUANT TO A PLAN)
25ALIEN (NON-U.S.) CAPTIVE
- MERGER
- REDOMESTICATION (F REORGANIZATION CHANGE IN
IDENTITY, FORM, OR PLACE OF ORGANIZATION) - TAX ISSUES
- IMMEDIATE TAXATION OF ANY UNTAXED EARNINGS AND
PROFITS, IRC 367(b) - IF WRITING ONLY POST-1986 OF NON-DOMICILE RISKS
(WHETHER RELATED OR NON-RELATED) LIKELY NO TAX
ISSUE - NOTE GROUP CAPTIVE PRE-1986
- NOTE SINGLE PARENT CAPTIVE PRE-1984
26ALIEN (NON-U.S.) CAPTIVE WITH DOMESTIC ELECTION
- CORPORATE AND REGULATORY FOLLOW ALIEN (NON-U.S.)
WITHOUT A DOMESTIC ELECTION - TAX FOLLOWS FOREIGN (U.S.) CAPTIVE
27ALIEN (NON U.S.) CAPTIVE WITH ELECTION UNDER IRC
953(c)(3)(C)
- CORPORATE AND REGULATORY FOLLOW ALIEN (NON-U.S.)
WITHOUT A DOMESTIC ELECTION - TAX FOLLOWS ALIEN (NON-U.S.) EXCEPT FOR REPORTED
INCOME (i.e., RPII)
28ALIEN (NON-U.S.)CELL OPERATION
- CORPORATE AND REGULATORY FOLLOW FOREIGN CELL
- TAX
- REPORTED INCOME
- NON-REPORTED INCOME
- RUN OFF OPTION
29GROUP CAPTIVES
- GROUP CAPTIVE CONCERNS
- SOURCE OF MEMBERSHIP/NON-LIABILITY RISKS
- MAINTAIN NO TAX ON NON-U.S. PARTICIPANTS WITH NO
953(c)(3)(C) ELECTION
30GROUP CAPTIVES
- GROUP CAPTIVE CONCERNS
- SOURCE OF MEMBERSHIP/NON-LIABILITY RISKS
- FACILITATE ACCESS THROUGH FORMATION OF A RISK
RETENTION GROUP - SUBSIDIARY
FOREIGNGP CAP
MEMBERS INSUREDS EXISTING GP CAP CAPITAL
TO FORM RRG GENERALLY NO LOC
NONLIABILITY (INCLUDING W/C)
R/I
100
RRG
MEMBERS
LIABILITY
31GROUP CAPTIVES
- GROUP CAPTIVE CONCERNS
- SOURCE OF MEMBERSHIP/NON-LIABILITY RISKS
- FACILITATE ACCESS THROUGH FORMATION OF A RISK
RETENTION GROUP - BROTHER/SISTER
SEPARATION OF MEMBER/ INSUREDS WITH FOREIGN GP
CAP. NEW CAPITAL NEEDED FOR RRG/OR DIVIDEND
FOLLOWED BY CAPITAL INFUSION SECURITIES LAW
ISSUES LIABILITY BUSINESS CEDED IN PART TO
FOREIGN GP CAP
MEMBERS
NON-LIABILITY BUSINESS CEDED TO FOREIGN GP CAP
32GROUP CAPTIVES
- GROUP CAPTIVE CONCERNS
- MAINTAIN NO TAX ON NON-U.S. PARTICIPANTS WITH NO
IRC 953(c)(3)(C) ELECTION - OFFSHORE CAPTIVE
- RPII APPLICATION TO U.S. SHAREHOLDERS
- IRC 953(c)(3)(C) COMPANY LEVEL TAX ON RPII
- ADDITION OF RRG
- ACCESS TO MEMBERSHIP IN U.S.
- FOREIGN RISK REMAINS IN FOREIGN CAPTIVE