The National Council of Insurance Legislators (NCOIL) has expressed concerns over a proposed IRS rule that it says could have significant implications for the state regulation of insurance.
NCOIL argued that the rule violates the McCarran-Ferguson Doctrine and threatens the established framework of state-based insurance regulation.
“The proposed rule undermines the well-established and continually reaffirmed framework of the state-based system of insurance regulation,” said Arkansas representative Deborah Ferguson, NCOIL president. “This system has created the strongest, safest, and most successful insurance market in the world, and it is imperative that state insurance legislators and regulators work together to prevent federal encroachment that has no basis in law.”
If implemented, the rule would encroach on states' authority in relation to captive insurance, NCOIL claimed. Captive insurance companies, utilized by many businesses across the country to mitigate various risks, particularly smaller to medium-sized companies, could be affected by the proposed rule. Specifically, the rule seeks to regulate the loss ratios of captive insurance companies.
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NCOIL acknowledged that the IRS has expressed concerns about certain companies' use of Section 831(b) of the Internal Revenue Code, which allows certain small non-life insurance companies to pay tax only on their investment income.
However, NCOIL asserted that the proposed rule goes too far by attempting to intervene in the loss ratios of captive insurance companies.
“We at NCOIL urge the IRS to retract the proposed rule and return to the drawing board to address its stated concerns in a way that is narrow, tailored, non-retroactive, and most importantly does not violate the McCarran-Ferguson Doctrine by infringing on the Congressionally-delegated rights of the States to regulate the business of insurance,” said NCOIL CEO Tom Considine.
A public hearing on this matter is scheduled for July 19. For more information and to view public comments on the proposed rule, click here.
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