BURLINGTON, Vt.—The one certainty about the Nonadmitted and Reinsurance Reform Act in applying it to captive insurance companies is that it's caused widespread uncertainty, a panel of captive insurance experts suggested.

At issue is whether the NRRA applies to captives and, as such, allows states to apply self-procurement taxes to captive parents based in those states with captives domiciled elsewhere.

While the federal law was intended to simplify surplus lines insurance tax allocations, confusion—in some cases deliberately fomented to prompt existing captives to redomicile, some speakers suggested—remains because of the law's failure to specifically exclude captive insurance.

Speaking as part of a panel focusing on the NRRA at this year's Vermont Captive Insurance Assn. conference in Burlington, Patti Pallito, deputy managing director of Aon Insurance Managers (USA) Inc. in Burlington and the session's moderator, said, “From a Vermont perspective, we're very concerned about what NRRA can mean to captives in this state.”

“States are in great need of money and this is a way they think they can pick up money quickly, so you've got to be vigilant,” said Thomas M. Jones, a partner at law firm McDermott Will & Emery L.L.P. in Chicago.

“If I have a bone to pick with NRRA…it's kind of tilted the playing field in a way that wasn't anticipated,” Mr. Jones said. “And the first tenet of good tax policy is tax neutrality.”

James T. McIntyre, a partner at McIntyre & Lemon P.L.L.C. in Washington, said the NRRA didn't give states any new authority and didn't change self-procurement tax laws.

“NRRA didn't change the tax laws with respect to the self-procurement tax,” he said. “If you were required to pay those taxes prior to the passage of NRRA, you're required to pay them today.”

Ms. Pallito said it's necessary that captive parents understand how states intend to apply self-procurement tax rules in determining how to respond. “We've had some companies that actually moved their captives from Vermont,” she said. “Or they established fronting captives in their home state if there's captive legislation there.”

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