nevada captive insurance association

1. 1 NEVADA 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

2. 2 REDOMESTICATION OF CAPTIVES BACKGROUND REASONS TO REDOMESTICATE TYPES OF OPERATIONS TAX ISSUES STRUCTURES ALTERNATIVES GENERAL BUSINESS ISSUES REGULATORY ISSUES CORPORATE ISSUES GROUP CAPTIVES

3. 3 REASONS 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

4. 4 REASONS TO REDOMESTICATE REGULATORY CONCERNS DOMICILE MAY CHANGE ITS POSITION ON TYPE OF BUSINESS DECISION TO INCREASE/DECREASE UNRELATED BUSINESS

5. 5 TYPES OF OPERATIONS TERMINOLOGY FOREIGN ALIEN FOREIGN CAPTIVE INSURANCE COMPANY FOREIGN SPONSORED CAPTIVE FOREIGN CELL

6. 6 TYPES 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

7. 7 STRUCTURE 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

8. 8 STRUCTURE 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

9. 9 STRUCTURE 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

10. 10 BUSINESS 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

11. 11 BUSINESS CONSIDERATIONS ASSUMPTION REINSURANCE MAY NOT BE PRACTICAL IF CONSENTS ARE NOT AVAILABLE FROM ALL INSUREDS DIRECTORS & OFFICERS UNRELATED BUSINESS OTHER

12. 12 BUSINESS CONSIDERATIONS RUN OFF OF OLD CAPTIVE MOST FLEXIBLE ADDITIONAL CAPITAL NECESSARY FOR LONG TERM ADDITIONAL EXPENSE MANAGEMENT ACTUARY ACCOUNTING

13. 13 FOREIGN (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

14. 14 FOREIGN (U.S.) CAPTIVE STRUCTURES MERGER, CON�T 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.

15. 15 FOREIGN (U.S.) CAPTIVE STRUCTURES MERGER, CON�T 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)

16. 16 FOREIGN (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

17. 17 FOREIGN (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

18. 18 FOREIGN (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

19. 19 FOREIGN (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(?)

20. 20 FOREIGN (U.S.) CAPTIVE REDOMESTICATION MOVEMENT OF CORPORATE ENTITY REQUIRES COMAPRABLE LOCAL LAW TREATED AS AN F REORGANIZATION FOR TAX PURPOSES

21. 21 FOREIGN (U.S.) SPONSORED CAPTIVE OR CELL STRUCTURES MERGER (NOT AVAILABLE) ASSUMPTION REINSURANCE RUN OFF

22. 22 ALIEN (NON-U.S.) CAPTIVE STRUCTURAL ISSUES MERGER REDOMESTICATION ASSUMPTION REINSURANCE RUN OFF

23. 23 ALIEN (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)

24. 24 ALIEN (NON-U.S.) CAPTIVE MERGER STATUTORY (CON�T) 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)

25. 25 ALIEN (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

26. 26 ALIEN (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

27. 27 ALIEN (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)

28. 28 ALIEN (NON-U.S.)CELL OPERATION CORPORATE AND REGULATORY FOLLOW FOREIGN CELL TAX REPORTED INCOME NON-REPORTED INCOME RUN OFF OPTION

29. 29 GROUP 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

30. 30 GROUP CAPTIVES GROUP CAPTIVE CONCERNS SOURCE OF MEMBERSHIP/NON-LIABILITY RISKS FACILITATE ACCESS THROUGH FORMATION OF A RISK RETENTION GROUP SUBSIDIARY

31. 31 GROUP CAPTIVES GROUP CAPTIVE CONCERNS SOURCE OF MEMBERSHIP/NON-LIABILITY RISKS FACILITATE ACCESS THROUGH FORMATION OF A RISK RETENTION GROUP BROTHER/SISTER

32. 32 GROUP 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