Criminal history and all, Vermont loves captive insurance companies

How much are they loved? Well, a former head of the Vermont Captive Insurance Association once called captives the “crown jewels in the state’s tiara” and swooned “There is maple syrup and skiing and cheddar cheese and captive insurance. What more could you want from life?”VT captive

The State of Vermont licenses more than one thousand captive insurance agencies (which exist to insure their parent companies). Once almost alone, but now one of eight states and the District of Columbia that currently have legalized captives in the US, the state fights for a share of the pie. “Vermont’s focus will always be licensing quality companies and regulating them in an appropriate manner commensurate with their risk.” says Dave Provost, Vermont’s Deputy Commissioner of Captive Insurance.

This isn’t car insurance. These are complex companies set up by (and captive to) a larger business in order to handle their own liability risk insurance needs. Essentially, an enterprise forms and manages its own insurance company as a subsidiary, and the enterprise’s other operating subsidiaries purchase insurance from the captive. 

For modest licensing fees, a small tax on premiums, and a friendly regulatory climate, Vermont provides a host of advantages for large corporations and wealthy families toward forming captives. Corporations can substantially lower their insurance costs, and captives provide shelter from certain federal corporate taxes. Premiums on small captives, also known as “cell” captives, hold special tax benefits for corporations. The benefits are so good, in fact, that in 2015 captive insurance was on the IRS’ “Dirty dozen” list of abusive tax scams

So then, how friendly are Vermont’s captive regulators? Well, only one member of each captive insurance board of directors is required to be (or become) a resident. And only one in-state meeting per year is required. But even that small demand is “waived” away by regulators : We do understand that the annual meeting requirement can be a hardship and have made many allowances over the years […] for last minute health or weather problems that made travel difficult.

In 2015 there were 33 new captives who chose to take shelter in Vermont. One notable captive with a colorful criminal history is Marubeni, a large Japanese commodity trading corporation.

Between 2012 and 2014 Marubeni paid $88-million and $56.6-million in US criminal penalty violations of the Foreign Corrupt Practices Act. This bit of unpleasantness is part of a long line of scandals going back to accusations of hoarding rice to profit on the black market in the 1970’s. In the 1980’s Marubeni executives were arrested and charged with bribing Japanese government officials to favor Lockheed Aircraft in Japan. These arrests lead to several suicides and the resignation of the prime minister. They followed that up with a round of bribery scandals involving Philippine President Marcos and several national development funds.

Every year the Vermont Captive Insurance Association hosts a weeklong conference. This gathering is attended by those directly associated with captives. It is also a magnet for the likes of Governor Shumlin and Lt. Governor Phil Scott, both of whom never seem to tire of reminding the captive insurance visitors that we are the kindest, warmest, most wonderful regulators a captive could ever want.

Conference attendee Lt. Governor (and gubernatorial candidate) Phil Scott said our captive regulator model should be expanded to all Vermont’s regulated sectors.“Imagine if we had a governor’s office that treated every sector in the same way” said Scott recently.

Sure, can’t you see Killington or Stowe welcoming Marubeni Corporation, perhaps advertising as the new second home to criminal “captives”? And is this vision of a corporation-colonized Vermont a place you want to live, when we’re paying the taxes they’re avoiding?

4 thoughts on “Criminal history and all, Vermont loves captive insurance companies

  1. Ironic isn’t it that the most progressive state in the union, and the home of Bernie Sanders, is also gracious host to this kind of legalized swindle.

    1. Everywhere you step-irony!

      Captives had been in Vt for a while but it was stock broker’s son Howard Dean that started selling them in Vermont big time.He vowed to overtake Bermuda which along with the Cayman Islands had been the traditional captive insurance havens.

  2. Valid concerns raised in this article. However, I just want to make sure everyone knows how important captives are to Vermont’s economy. We get a huge benefit from hosting captive insurance companies in Vermont (without having to provide much in the way of public services). Most of them appear to be playing by the rules and are subsidiaries of reputable companies.

    1. I am sure there is benefit to the state and all corporation aren’t villainous.

      However it is worrisome that the single biggest selling point the state has against other state’s captives is to keep the regulatory atmosphere very friendly. And what does that look like?
      In the past as a come on to captives a $7,500.00 dollar tax offset to yearly premiums was offered to new captives and major “housekeeping” changes to captive laws are taken yearly in the legislature.
      Several years ago an entirely new class of captive was granted by the state at the request of captive insurance companies. “Basically this was something that the industry requested,” Mr. Provost [Vermont’s Deputy Commissioner of Captive Insurance] said. “They wanted to see the option to have incorporated protected cells.”
      And these “cells” are the same class of captives the IRS now has named to their dirty dozen of corporate tax dodges.

      It’s all about friendly regulation-Marubeni isn’t here to ski or even visit.

      BTW: Marubeni Corporation has majority investments in the privatized municipal water system in the Philippines. Marubeni is now putting the squeeze on the government and consumers water bill to raise rates and to recoup their investment at a faster pace.
      http://www.bloomberg.com/news/articles/2015-04-21/first-pacific-s-water-unit-reviews-spending-amid-impasse

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