Potential future net revenues from licensing fees for V.I. "captive insurers," if any, will go to subsidize the territory’s two financially struggling hospitals if legislation approved in committee Tuesday becomes law.
The bill sponsored by Sens. Tregenza Roach and Alicia "Chucky" Hansen devotes whatever funds from captive insurance remain – "after all administrative expenses and documented expenses" – be split between the two hospitals. [Bill 30-0316]
Neither proponents of the bill nor testifiers from Government House projected a dollar amount that might be generated by the measure, but expressed hope the captive insurance market would grow in the territory in the near future, thanks to a restructuring of V.I. captive insurance regulation last year. (See related link below)
Captive insurance is when a large company insures itself by setting up its own insurance subsidiary. Rather than insuring through a separate company, it insures itself and doesn’t have to pay premiums. The territory has had a law allowing tax benefits to bring in captive insurance companies, but has not had much growth, while other jurisdictions have been more successful in attracting this business.
The territory generates revenues from annual licensing fees, but, like the finance companies attracted to the territory by its Economic Development Authority’s tax benefit program, the captive insurance companies pay no local taxes on the potentially billions of dollars in insurance company funds flowing through the territory.
Hospital officials strongly supported the bill, saying any increase in revenue is extremely welcome because of their precarious financial condition and tens of millions of dollars in uncompensated care.
Several government officials also testified in support of the bill but cautioned that it may not produce an immediate windfall of cash.
"This is not a panacea because we don’t yet know if it will be a substantial stream, which we hope it will be," said Finance Commissioner Angel Dawson.
John McDonald, director of Banking and Insurance, submitted written testimony against the legislation, saying he cannot support the bill because the division of "Banking and Insurance is already underfunded and understaffed itself."
"I understand the need and desire, but I cannot support it," McDonald said.
Sen. Judi Buckley said the main question remaining was what sort of revenues might be produced. Buckley said she looked at several other island nations to try to get some context for comparison. She said Anguilla has more than 200 captive insurers and "their revenues are upwards of $1 million a year. And Nevis sees $2 million, if I am reading it correctly."
Buckley said she regretted that McDonald or some other representative of Banking and Insurance was not there to answer questions.
When the Legislature clarified captive banking regulations late last year, the Division of Banking and Insurance said the territory once had a peak of a dozen captive insurers, but was down to five. Meanwhile the British Virgin Islands, which began its program a decade later than the USVI, had around 153. (See related link below)
Buckley asked Dawson if he knew of any new captive insurance applicants.
"The authorizing legislation was just passed," Dawson said, suggesting the EDA might have information. Attorney Frederick Handleman, special assistant to EDA Executive Director Percival Clouden, said they have "reprogrammed” some of their marketing funds so they “can actively pursue" more captive insurers.
The committee voted unanimously to send the bill on for further consideration. Voting yea were Buckley, Sens. Donald Cole, Myron Jackson, Terrence "Positive" Nelson, Nereida "Nellie" Rivera-O’Reilly, Clarence Payne and Clifford Graham.
The Finance Committee also sent on two government leases in Sub Base on St. Thomas, one to Sales and Services Inc. for $45,000 annually and one to Commercial Security Services Ltd. Inc. for $18,000 annually.
The committee voted to hold a bill requested by Government House authorizing the establishment of a public corporation to receive and hold the assets of Lonesome Dove Petroleum Company Inc., as a subsidiary of the Virgin Islands Public Finance Authority, to provide for any income for the corporation. The territory was awarded the leases, which generate around $1 million annually, as settlement in a tax case. Attorney General Vincent Frazer said the government needed a vehicle to oversee the assets so the court will turn them over and out of receivership.
The committee also held two bills requested by Government House that moved around an array of small appropriations and made technical and other corrections to the Fiscal Year 2014 budget. Graham, the committee chairman, said the substance of those bills would be addressed before the next session of the Legislature.