Today, most reinsurance companies are based offshore in places such as the Turks and Caicos Islands. But, as of 2012, there is a viable domestic alternative located in Kansas - the Tribal Domicile of the Delaware Indians. Though the tribal domicile operates as a separate entity from the United States, it is located within its borders. And since it is located in the continental US, by IRS standards, they are considered a domestic company. One of the benefits therefore, is that US reinsurance companies domiciled there do not have to file a 953(d) tax form as they would if domiciled off shore.
Tribal Domicile Insurance Commissioner, Tim Houseberg, says that because of the strong feeling of patriotism felt in the US right now, many dealers do not like the idea of a being perceived as a foreign company. This is one of the reasons the tribal domicile offers a timely alternative to offshore locations for domiciling reinsurance companies. The US Constitution recognizes Indian tribes as separate from federal government, state government and foreign nations. They have the express power to regulate their own commerce. “Basically,” says Houseberg, “We can do anything except print money and fill the army.”
The Tribal Domicile was formed in 2012 and is physically located within the state of Kansas. They operate their government through monthly tribal council meetings, consisting of 6 members and a chief. One key strategy has been to incorporate a grandfather clause into their insurance laws and regulations for the first 5 years that a company is domiciled there. This means that if the company opts in, the laws that exist when a company becomes domiciled will remain unchanged for 5 years, and this option will continue in 5-year cycles after that. “They get the option to opt in or out of changing laws, so it gives them some regulatory certainty so to speak,” says Houseberg, “When you read the law, it is basically an opt in or opt out clause. If they like what they’ve got - the law, structure, fee, whatever - they have the opportunity to choose to continue operating under the law from when they were set up, or they can choose the new law. The tribe also gives every company that is either forming or relocating to the tribal domicile an exemption from future taxation by the tribal government, good for 20 years.”
Houseberg, who has been insurance commissioner since the tribal domicile’s formation in 2012, describes his own background as an odd mix of tribal government work and the auto industry. “I was educated to go to work for Indian tribes and for a long time I worked for the largest tribe in the nation, who was a part of the first in a environmental regulatory body. This first took place for the Cherokee nation, then in the other 38 tribes in the state of Oklahoma, and finally, in the AICP in New Mexico. Somewhere along the way, I woke up and was in the retail side of the automobile industry and the consulting side as an agent. For a long time, I had been thinking about ways to work sovereignty for an Indian tribe. I was having some life changes and decided to merge my experience with tribal government regulation and the auto industry, and I began to think, ‘Why do these auto dealers have to be offshore?’ Working in dealerships, we always had reinsurance structures that were offshore. So I started putting the same principle we used in environmental regulation from my Indian background to work with reinsurance and thought, ‘Hey - we can bring those guys on-shore!’ So after thinking about it for quite some time, we got serious about it in 2012. I enlisted the help of some of the industry leaders and kind of put it together then.”
How does the tribal domicile differ from off shore domiciles, such as the Turks and Caicos? Houseberg says the fees are about the same but the process to set up a company is days rather than weeks. This is because insurance managers deal directly with registrars of companies or the insurance commissioner. There is direct access with no go-between. The biggest difference though, is that companies domiciled in the tribal domicile are considered US companies for tax purposes. They do not have to file a 953(d) tax form as they do offshore. Houseberg says being able to drive to the domicile is another big appeal for reinsurers, who may not be as comfortable having companies offshore and less accessible.
“In the Turks and Caicos, the fee is generally $900-$1200, depending who you are going through. Typically, in the Turks and Caicos, there is an on-island manager and a jurisdiction that receive a fee. Then there are what I refer to as ‘the on-island guys.’ They are usually a law or management firm and an insurance manager – things go through their hands next and then they wholesale to someone in the US. So by the time it gets to the US, you have all these fees - $500 here, $700 there, $200 there – in order to go through these different channels to get your actual formation done.
Houseberg explained their process to form an allied reinsurance company. “Our laws, regulations, forms and certificates are all electronic, so insurance managers have information readily at hand and can review it electronically. We currently accept everything through email but by the end of the summer we will have a web-based submission process. Insurance managers submit an application to form a company in the Tribal Domicile and then an application for that company to conduct the business of reinsurance. Once all required information is received, the fulfillment package, including the certificate of incorporation and the certificate of authority, is delivered electronically. The fulfillment package contains everything for a reinsurance company’s license and the turn-around time is typically 72 hours.”
The tribal domicile’s definition of insurance includes obligor structures, so there is more flexibility than is available in an offshore operation. Houseberg says they are the only true alternative to a controlled foreign corporation (CFC). Since the domicile does not require that specific products be listed in a company’s charter, a dealership or their agent can add products to its mix of business without having to modify their charter. This has a great appeal since new products are always being offered. In the traditional offshore, a company has to modify their license each time there is a new product added. Houseberg continued, “There are no nickel and dime charges if you make changes. Our fee is an all-inclusive fee, so if you change your insurance or need to notify us of any update in your charter, we do that for the single fee. Since allied reinsurance companies are already regulated by the direct writer, there are no audits, and no exams. If the CFC stops writing insurance in the traditional sense and no longer qualifies as an insurance company, it must liquidate. In our domicile, it’s a domestic corporation and keeps that status even if it stops writing insurance. This is really important for the dealer and insurance manager.”
The Tribal Domicile already has positive feedback from most of the largest insurers, with at least five insurers willing to cede or currently ceding business into the domicile. They had over 40 formations in 2013, with more than half of those taking place in the last quarter. Houseberg says the concept was extremely well received at Agent Summit and he expects 2014 and 2015 to be highly successful.
