Your NY Connection magazine Third Quarter 2018 • Issue 23

WILDFIRES Taking a fresh look at Not Just a West Vendor Risk Coast Problem Management

Déjà-Vu All Over Again State Senate Remains New York’s Political Battleground

The Tax Cuts & Jobs Act Implications For Property & Casualty Insurers

KNOW BETTER NEW YORK CONNECTIONS www.nyia.org • Third Quarter 2018 • 1 2 • Your NY Connection Magazine Contents

FEATURES 10 10 Taking a Fresh Look at Vendor Risk Management

26 Wildfires 26 Not Just a West Coast Problem 32 The Tax Cuts & Jobs Act Implications For Property & Casualty Insurers

42 Déjà-Vu All Over Again State Senate Remains New York’s Political Battleground

IN EVERY ISSUE

04 Chair’s Message

06 President’s Remarks

08 Alternate View

19 Q&A 32 22 Out & About 24 Giving Back 42 50 New & Noteworthy Déjà-Vu All 54 Upcoming Events Over Again: State Senate Remains New York’s Political Battleground

www.nyia.org • Third Quarter 2018 • 3 NYIA OFFICERS & DIRECTORS Chair’s Message Elizabeth Heck, Chair President & CEO We have been talking about the need to attract new Greater New York Mutual Insurance Company talent to the industry for well over a decade. The conversation first started out of the very real need to Mark Prechtl, First Vice Chair Executive Vice President/CEO address the talent gap that would occur with the large Chautauqua Patrons Insurance Company number of impending retirements. Since then, the definition of ‘talent gap’ has expanded to include not Charles Makey, Second Vice Chair Senior Vice President, Insurance Operations only the lack of qualified people to backfill vacating Merchants Insurance Group roles, but the changing skill set required to keep our companies relevant. Rapidly improving technology provides new opportunities, but only if we have Norman Orlowski, Treasurer the right people in the right jobs. President/CEO Erie and Niagara Insurance Association The industry has done a better job attracting talent than initially predicted. This Steven Coffey, Immediate Past Chair is evident in the greater number of risk management degree programs available Vice President Broome Co-operative Insurance Company and the increasing number of ‘young professional’ groups within insurance networking organizations. We are bringing qualified, bright individuals into the Ellen Melchionni, President fold and they are staying because they recognize that insurance is a necessary President New York Insurance Association, Inc. service that is not only critical to the economy, but offers career opportunities, stability, and the ability to work with smart, energetic people. Stacey Orlando, Secretary Director of Design & Technology At GNY, I have spent a considerable amount of my time working on this very New York Insurance Association, Inc. topic. I am proud of the team we have built, but having a good internal team Matthew Benedict is only part of the equation. To truly thrive in this changing environment, we President & CEO must have qualified people across the entire spectrum of the industry. This Midstate Mutual Insurance Company means that there is opportunity for incoming professionals in any number of Mark Gardner ancillary businesses—including the DFS—which requires knowledgeable and New York Regional Counsel experienced individuals from the industry to serve as subject matter experts. Allstate Insurance Company

Edward Harper We have witnessed firsthand the struggles DFS is facing with longtime staff President & CEO members retiring. The DFS has been upfront about their looking to hire Mid-Hudson Co-Operative Insurance Company individuals to help bridge their own talent gap. We have felt the impact of their Stephen Harris turnover in our inability to get filings and other matters approved timely. While President & CEO it’s frustrating, attracting talent is a challenge we share with our regulators. Sterling Insurance Company

Craig MacCormac Seeing the challenges ahead, NYIA started the New York Insurance Scholarship Vice President, Business Development Foundation (NYISF). The foundation supports students who have a desire to Hartford Steam Boiler Inspection & Insurance Co. work in insurance and are enrolled in a bachelor’s or advanced degree program Patrick O’Malley in any major. We know the skills needed in insurance are diverse, and we want General Manager, Commercial Lines Division to appeal to an audience that has the breadth and depth to meet those needs. Progressive

Kristofer Snader I have been part of the Selection Committee for a number of years and I am Senior Director, Government Relations increasingly impressed by the candidates who apply. If the applicants are any Nationwide Insurance indicator, I have great hope for the future of our industry. Jaynine Warner Legislative Affairs, North Atlantic Farmers Group, Inc. Elizabeth Heck NYIA Chair 4 • Your NY Connection Magazine Hoffman R Roth & M Matlin, LLP

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505 8th Ave., Suite 1704 www.hrmnylaw.com 212.964.1890 [email protected] New York, NY 10018 NYIA STAFF President’s Remarks Ellen Melchionni, CAE President The New York State election cycle is in full swing. With [email protected] less than 10 weeks before Election Day, candidates for Cassandra Anderson, CAE Assembly, Senate and other offices are busy pounding Vice President the pavement. Television ads are looping, tweets are [email protected] chirping and requests for donations seem endless. Javier Tapia Director of Government Affairs While we are including an extensive article on the [email protected] hottest state races in the magazine (see page 42), I wanted to share my own Stacey Orlando perspective. I was having lunch with colleagues recently and was asked, “What Director of Design & Technology do you think the chances are that the state Senate flips from Republican [email protected] control to Democrat?” Folks at the table chimed in with their predictions and Susan Dawes opinions. I was having dinner with different colleagues that night and the Account Services Coordinator same conversation ensued. I know you must be thinking she sure does talk [email protected] politics a lot, but if you live in Albany, are involved in the political arena or are a lobbyist, this topic has been discussed ad nauseum since session adjourned. Kaitlyn Emory Administrative Assistant [email protected] I have observed that often the opinion shared is tainted with desire. If you ask any staff person, they will tell you with great enthusiasm why their party will be in control. If you ask a lobbyist who has a favorable history or connection with NYIA OFFICE one particular party, they will assure you that this party will be in the majority.

130 Washington Avenue Albany, New York 12210 I would argue that a truly good lobbyist has already made connections on 518.432.4227 both sides of the aisle. They’ve done their job educating any legislator with 518.432.4220 fax influence or potential influence on their issues. They may have spent less time [email protected] with those that currently have less influence, but they’ve identified themselves www.nyia.org as a resource—even for those that are not currently in the majority.

So how have I answered the recurring question about the fate of the Senate? I have answered the same every single time. I say with complete confidence that it is a toss-up. I say adamantly that it is 50/50. This may sound like I don’t want to be on record with my prediction, but I think it is way too close to call. I believe anything can happen over the next few weeks that could sway the outcome. There could be another Presidential misstep that causes the anti- Visit Us Online Trump blue-wave to further swell in the Empire State. There could be another www.nyia.org Gubernatorial misspeak that slaps proud Americans who think the country is great. There could certainly be another indictment or unexpected retirement facebook.com/ for one of the Senators. The wind could blow in either direction this fall. newyorkinsurance association I would not put all my eggs in one basket. That is why NYIA has carefully and twitter.com/nyinsuranceassn purposely placed our delicate association eggs in as many baskets as possible. linkedin.com/company/new- york-insurance- Ellen D. Melchionni, CAE association NYIA President

6 • Your NY Connection Magazine Editor-in-Chief Know a student Cassandra Anderson Creative Director interested in a Stacey Orlando Contributing Writers career in insurance? Thomas Barber Nils F. Deacon Susan L. Dawes Kaitlyn Emory If so, be sure to encourage them to apply for Steven Greene Sue C. Quimby a scholarship with the New York Insurance John Romano Scholarship Foundation! Any individual pursuing Phil Schmoyer Russell Sommers a bachelor’s or advanced degree is eligible. Javier R. Tapia Additional info is available at www.nyia.org/nyisf. Looking to advertise? Please contact Stacey Orlando at 518.432.4227 or [email protected].

No part of this publication may be ensuring the future of our reproduced, stored in a retrieval system or transmitted in any form, industry starts here electronic, photocopying, recording, mechanical, or otherwise without prior written permission of the publisher.

Copyright 2018 by New York Insurance Association, Inc. All rights reserved. www.nyia.org/nyisf

www.nyia.org • Third Quarter 2018 • 7 ALTERNATE VIEW A slightly different take on SHOULD P&C insurance issues INSURANCE BE

by Susan L. Dawes MANDATORY? New York Insurance Association, Inc.

The Affordable Care Act has created great Do you think insurance should be mandatory controversy regarding government mandated (excluding health insurance)? insurance coverage. In talking with my colleagues Of the responses I received just over 50 percent at NYIA I learned that mandatory coverage has been said yes to all types of insurance. The rest was a a hotly contested discussion in the property and mix of just under 25 percent saying no and an equal casualty insurance realm as well. While NYIA has to number saying yes to auto and no to other types of date steadfastly opposed mandatory coverage or in insurance. It appears at least in my world that this general, taking away choice for a consumer, those continues to be a topic of controversy. in government have at times taken a different view. Public policymakers have on numerous occasions What is your perception of the insurance industry? required coverage or most recently created an opt- Of the responses I received more than 75 percent out mechanism for coverage that was intended had a negative perception of the industry with most to be optional (i.e. supplementary uninsured/ mentioning the impact of fraud on their premiums underinsured motorist coverage matching bodily and the high profits they felt insurance companies injury limits). I think it is safe to say that people made. The view was also expressed that some often blame insurance companies for mandates and insurance companies attempt to get out of paying not the elected officials who are actually making claims. The remaining responses were one person the decisions. had a positive perception and another indicated insurance is a “necessary evil,” but worth the cost. Given how the public reacted to health insurance being mandatory, I thought it would be interesting In reviewing the responses, I was quite surprised that to get some quick opinions on coverage being over 50 percent said yes to mandatory insurance. mandated for other types of insurance. I recently However, I was not surprised by the high percentage conducted a small, very informal poll of friends of those with a negative perception of the industry. and family members, with a wide range of ages I have learned during my time at NYIA how hard represented among the nine responses I received. we are working to change this perception and I posed the questions below and purposely left clear up misconceptions that exist. While far from the phrasing open-ended with the hopes of getting scientific, I think my poll suggests that insurance more of a reaction. I have provided a sense of being mandatory may be part of the problem and, as some of the commentary shared as well to provide the industry is well aware, more needs to be done to greater context. educate the average insurance consumer.

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10 • Your NY Connection Magazine Vendor Risk Management

by Russell Sommers, John Romano and Phil Schmoyer Baker Tilly Virchow Krause, LLP.

oday’s business environment is exponentially more interconnected than it was just a few years ago. A pivot from owning the entire value chain to a focus on core competencies Tand strategically partnering for specialized services has led to a significant increase in the outsourcing of both key and non-key functions. This business shift has led to a corresponding shift in risk management from the internal people, process and technology to monitoring those areas at third party service providers.

With this migration to outsourced services, the topic of vendor risk management (VRM) is becoming increasingly complex with more vendors providing more services, often handling sensitive data with specific regulatory requirements. In addition to traditional performance based vendor risks, recently third party cybersecurity has become a top concern. This significant risk has been identified by regulators as well, who aim to put more emphasis on the C-suite and those charged with governance to be held accountable for the risks and actions of third parties.

www.nyia.org • Third Quarter 2018 • 11 Cybersecurity Cybersecurity requirements Has Become Per NYS DFS Cybersecurity Law (Part 500). Section 11 Top Concern of the Part 500 becomes effective on March 1, 2019. 5Below are the requirements for a covered entity.

1. Implement Policies 2. Conduct Assessment

Implement policies and procedures for the management Conduct a risk assessment over third party service and oversight of third party service providers. These providers. should include provisions for assessing the following: 3. Establish Practices o Use and deployment of multifactor authentication (500.12). Establish minimum cybersecurity practices required to be met by such third party service providers. o Use and deployment of encryption for data-at-rest and data-in-transit (500.15). 4. Due Diligence Processes

o Notification requirements of cybersecurity Establish due diligence processes used to evaluate the events, data breaches, services outages and adequacy of cybersecurity practices of such third party other events impacting the covered entity. service providers.

o Representations and warranties relating to 5. Periodic Assessment third party service provider’s cybersecurity policies and procedures that relate to the Conduct periodic assessment of such third party service security of the covered entity’s information providers, based on the risk they present and the systems or nonpublic information. continued adequacy of their cybersecurity practices.

The department has essentially codified industry best practice minimum standards for conducting third party vendor due diligence and monitoring. The primary theme of this section of the regulation is that outsourcing business operations or using third parties does not absolve organizations of their responsibilities to manage risk. Those charged with governance need to monitor the actions of those working on their behalf with the same level of due care applied to their own people, processes and technology.

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“Trust in Tomorrow.” and the “Grinnell Re” are registered trademarks of Grinnell Mutual Reinsurance Company. © Grinnell Mutual Reinsurance Company, 2018. The following outlines key considerations in building or improving a VRM process. Identify and inventory third party service providers

Many organizations if asked “how many vendors do you Develop a VRM Policy use?” cannot easily answer the question and do not The policy should outline minimum standards, have the information readily roles and responsibilities and serves as a available. Management guide for employees. The policy should also should be aware of the be aligned with your organization’s strategy extent of use of third and approved by executive management. parties, their interaction Below are the vendor governance policy and with consumers, and what procedures that should be addressed. activities they perform. Those organizations that do maintain vendor databases „„ Definition of a vendor „„ Termination protocols may be incomplete or decentralized, making it „„ References to other internal „„ Minimum cybersecurity difficult to compare and and applicable policies standards for third parties, consider all vendors and (system access, accounts specifically including: related risks. payable, general expense, etc.) »» Cybersecurity program „„ Roles and responsibilities An effective database »» Data security should be centralized, well „„ Vendor inventory standards managed and include all requirements (master list by of the third party vendors department) »» Incident response and engaged, a summary of the breach notification services contracted, key „„ Due diligence process contacts at the vendor and »» Deployment of contract renewal dates. „„ Risk assessment process information security Consider starting with tools, including accounts payable with „„ Contracting requirements multifactor either the vendor master authentication and or annual check register to „„ Ongoing monitoring process encryption validate current databases or build your central „„ Management oversight and „„ Minimum documentation repository. Doing so will supervision requirements (internal) ensure you capture all your vendors. After all, if you are „„ Performance metrics „„ Sample tools and templates paying them, they should be delivering a good or service to you.

14 • Your NY Connection Magazine Identify Vendor Risks

After completing your repository, a catalog of the key risks the vendor poses should be developed. The identification process may prove invaluable as the exercise, if conducted with key management and staff member personnel, usually results in the identification of new risks that may not have initially been considered.

Key factors to consider when risk rating include (but are not limited to) the following:

„„ Does the vendor provide goods or services? „„ What is the extent of outsourcing performed by the vendor (4th and 5th party vendor risk)? „„ Is the vendor critical to operations? „„ Are there any known performance issues „„ What is the volume of transactions processed? or cybersecurity issues? If so, what?

„„ What is the physical location of the „„ What is the financial impact of vendor (domestic versus international)? the vendor relationship?

„„ What is the business impact of vendors „„ Does the vendor transmit, process or not meeting performance standards? store non-public information, including personally identifiable information (PII), „„ Does the vendor interact with policyholders? protected health information (PHI), or payment card industry (PCI) data?

Conduct a stratified risk analysis Develop a consistent approach to due diligence

There are many different methods to conducting a risk Due diligence activities may vary depending on the analysis and there isn’t a one size fits all approach. Your type of vendor, the information the vendor has access risk analysis will be dependent on your organization’s to or is processing, compliance requirements and use of vendors, compliance requirements and resources presence of other similar quality providers in the available. marketplace amongst other reasons. The due diligence process for vendors should be defined and consistently After considering vendor and service risks, a simple applied across business units and automated where stratification process should identify your low risk, possible. Most companies operate in a decentralized medium risk and high risk vendors. The risk stratification environment where the business units manage the process should be updated periodically and reviewed due diligence process of the vendors they oversee more formally on an annual basis. The risk stratification with risk management or compliance providing the process would assist in determining the level of ongoing tools, education and process structure. This results in a due diligence and monitoring required. consistent and objective approach.

www.nyia.org • Third Quarter 2018 • 15 A risk based approach should drive the level of due indirect access to company property and data. Lastly, diligence performed. Due diligence should be reasonable, there should be explicit language around the ownership in that too much paperwork will result in employee of the aforementioned data, provisions for the return fatigue and lessen the effectiveness or result in delays in or confirmation of deletion of that data, as well as performance; whereas, an ad hoc approach without the provisions and a communication timeline for any known requisite structure may result in inconsistent application or suspected breach of that data. of company standards. Consider which governance model effectively serves Ensure the contract process is understood, consistent your culture and includes protective clauses Depending on your resources and culture, it may prove The first important step in the contract process is to have better to have a decentralized, centralized or hybrid a consistent process to manage contracts. Your contract governance model. manager, with the assistance from business unit managers, should develop or establish a process for embedding Centralized performance indicators within contracts, including 1 A centralized governance model references that contract review criteria and schedules consistent with there is a department or dedicated personnel to the established indicators. While establishing risk and vendor risk management. A centralized governance and performance indicators is considered a best practice and procurement function leads to more control, consistency higher on the maturity scale of VRM, your organization in processes and a more holistic view of vendor risk can take a step in the right direction by establishing or management. However, the business focus can be lost improving your contract exception and review processes. with centralization—‘they just don’t understand my needs,’ For example, the exception and review process should becomes the business user catchphrase when describing address questions such as: when is a contract required procurement. Furthermore, in large and complex for services, when is the contract required to be reviewed organizations, centralized procurement and VRM can by legal, is there a fast track process for pertinent and lead to the department being viewed as a cost center timely business needs and is there a remediation process itself, having too much data and competing priorities. to address contract deficiencies?

As discussed above in inventorying your vendors, the Decentralized contracts for most vendors originate with the vendor, 2 A decentralized environment may have a therefore the clauses that are included are usually corporate procurement function with the in the vendor’s favor. While at times vendor contracts business units or departments being responsible for can be accepted as is for certain services, for those vendor contracting, risk management and monitoring. services involving managing general agents and third party administrators, your organization should ensure there are key clauses such as the existence of errors Hybrid and omissions clauses general liability insurance, right 3 A hybrid environment combines aspects of both to audit clauses, and other indemnification clauses as the centralized and decentralized approach. necessary. Most importantly, there should be mandatory This may look different from organization to organization, IT and cybersecurity standards required in contracts but one iteration is a heavily decentralized process with and/or the existence of business associate agreements a centralized tracking system to allow for oversight to be signed by each engaged vendor with direct or across the organization.

16 • Your NY Connection Magazine Serving the Needs of the Insurance Community

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Most companies are utilizing simple spreadsheets to track vendor inventory and conduct their risk analysis. For centralized and decentralized environments operating with only Microsoft Excel or other spreadsheet tools, your organization should consider taking the next step in maturing your VRM process by implementing team collaboration infrastructure that can be used as the repository for vendor contracts and team sites to support decentralized environments. Workflows can be created to expedite approval processes and reduce Stakeholder Involvement paperwork. Many software options offer features like standardized workflow with the focus on Regardless of the structure, the quintessential collaboration and creating efficiencies in your concept required for VRM to be successful VRM process related to inventorying, contract is stakeholder involvement. The following management, risk analysis, and workflow processes, perspectives need to be addressed: while formalizing internal controls around approvals and approval authority.

„„ Business needs Today’s insurance organizations should (business relationship owner) evaluate their current third party due diligence and VRM programs in the context of a risk- „„ Technical risk expertise based framework that incorporates attributes of (risk management or compliance) consistency, management oversight, objectivity, and reasonableness while working towards „„ Information security making improvements over time. With the NYS concerns DFS effective date of March 1, 2019 looming, it (information security team) is imperative that covered entities develop their VRM policy, vendor population, conduct the vendor „„ Executive sponsorship risk assessment and begin executing against a (executive management) risk based due diligence and ongoing monitoring program to evidence their compliance.

If any one of these roles is excluded, it Russell Sommers, John Romano and Phil creates a blind spot relating to the impact on Schmoyer are senior managers with Baker Tilly business and/or IT performance, the legal or Virchow Krause, LLP. You can reach Russ at russell. regulatory requirements, or the importance to [email protected] or 646.776.6214, John the organization. at [email protected] or 215.972.2277 and Phil at [email protected] or 215.972.2425.

18 • Your NY Connection Magazine Estate program I secured a real estate license and tried my hand at selling real estate. It was no better than retail. Upon graduation, an ad appeared for a personal lines underwriter at Capital Mutual Insurance Company in Sand Lake. So I applied and discovered the wonderful world of insurance. The work week was awesome! The people, and industry purpose made me feel great too. I was hooked.

Q: Where did your career take you before you landed in Q&A your current role? A: Always upstate New York and always the small mutual market. Capital Mutual gave me my introduction to John Owens small mutual personal lines. A year there, and I was by Cassandra Anderson, CAE off to Electric Insurance Company in their Schenectady New York Insurance Association, Inc. office working for Paul Robinson and learning personal auto, but that did not last. They moved their offices to ohn Owens is a man on a mission. It may not be Massachusetts and did not invite me. The insurance obvious at first, but John, who is president and business is a small world. Joanne Robinson (note the CEO of Madison Mutual Insurance Company, has connection) at GM Re Agency (a subsidiary of Guilderland a tremendous amount of passion about whatever Mutual Reinsurance Company) was looking to hire. Six J he is engaged in. As a lifelong upstate New York years under the tutelage of Hank Pellerin and Frank resident, he is committed to the insurance industry, Becker, along with a lot of change at GRC, was a great especially small mutuals, and working to improve the education. Then it was time to move on. All good as business climate in New York. When he sees a challenge Timothy Burback at Madison Mutual Insurance Company he does not shirk away from it and instead faces it head was looking for a marketing person. And I was home. At on. He is enthusiastic and brings a quiet energy to all Madison, you get to participate in all functions. No day is that he does. He is incredibly efficient. I marveled at him the same. It is a great place to have a career. responding to my questions in less than 24 hours. He is not only quick, but also insightful, so I encourage you to Q: What do you like best about working in insurance? read on and learn about John’s take on insurance and A: You get to help people even though they harbor great optimistic, yet realistic, viewpoint on life. dislike for the industry.

Q: What drew you to work in the insurance industry? Q: What do you like best about working for Madison A: The work week, then the people. Unless you have Mutual? worked a few years on a rotating schedule (I was in A: The humanity. It is real people helping real people— retail management) you may not truly appreciate the policyholders and agents. You really get to make personal awesomeness of Monday through Friday with holidays connections that matter. and weekends off. I was an unfocused young man and college was not my thing. So after a few years as a Q: What is Madison Mutual’s greatest strength? retail store manager the light went on about the value A: The mutual concept. It has worked for Madison for the of education. Between my two years at Hudson Valley past 125 years. If we ever forget it we will lose sight of Community College in their Banking, Insurance and Real who we really are.

www.nyia.org • Third Quarter 2018 • 19 Q: What do you view as the greatest opportunity for the Q: How would you describe your leadership style? industry over the next 5–10 years? A: I don’t see myself as having any one particular style. A: Stability in raucously changing times. I know we have to modernize to remain competitive but the insurance Q: How would your colleagues describe you? industry is heavily relied upon by our country (both its A: I really do not know. And it makes me cringe to think people and the economy) for financial opportunity about it so I won’t make any inquiries. But please, don’t and stability. That stability fosters confidence both ask Tom White! personally and corporately. With better advertising, we can improve our image and continue to meet the needs Q: If you were to encapsulate your philosophy on life on of our customers by remaining steady and reliable. a bumper sticker, what would it say? A: Let’s go fishing! Q: How long have you been affiliated with NYIA? A: NYIA has been in the background of my insurance Q: If you weren’t working in the insurance industry, what experience for my entire career. Only during the past few would you be doing? years have I found the opportunity to get more involved A: Fishing. Probably in Montana. and look to NYIA for assistance on matters related to the bigger picture. Q: Is there something people would be surprised to learn about you? Q: What is the greatest opportunity for the association? A: I really enjoy online computer games like World A: Being the concentrated voice of the New York State of Warcraft, Overwatch, Starcraft, Civ 5 and Fortnite. insurance market. Our state capital, Albany, seems to have Screenname … CraftRats. lost its place in insurance regulation to New York City where they do not seem to have a working knowledge Q: Where is your hometown? of the small mutual industry that supports the upstate A: Cohoes, New York New York economy. I look to NYIA to be our voice on the importance of insurance and the role of mutuals. Q: What do you like best about living in central New York? Q: What prepared you for your current role? A: I live in Chenango County in a rural setting. Upstate A: Working with terrific mentors like Hank Pellerin, Frank New York offers so much natural beauty each season that Becker and Timothy Burback. I can’t imagine living elsewhere (except maybe Montana).

Q: What is your greatest professional accomplishment? Q: When you are not at the helm of Madison Mutual, how A: Just working in the insurance industry. This industry do you like to spend your free time? has some of the greatest people! After meeting new A: When the grandchildren are not at the house I enjoy people at industry events I am always amazed at the playing online games with friends and family or a quality of the professionals we have … and I get to be peaceful afternoon canoeing and fishing. counted among them. It is great! Q: If you could have any super power, what would it be? Q: How do you define success? A: But I already have a super power. It is just not A: Learning new things. It seems to get harder as we age, widely recognized that being an insurance nerd is a but it is so very important. Every day I learn something super power. I can get groans from almost any crowd new is a successful day! (especially family) with a risk management look.

20 • Your NY Connection Magazine Pastel & Rosen, LLP

Engaging in the general practice of law with an emphasis on representing property/casualty insurance companies for legislative, regulatory, and compliance work.

Robert S. Pastel, Esq. and Michael E. Rosen, Esq. 130 Washington Avenue, Albany, NY 12210 (518) 462-4715 PastelandRosen.com JUNE 27 Out & Finger Lakes Insurance Council Conference JULY 10 AbOut Cassandra Anderson and Javier Tapia attended this Member Company Visit at gathering of regional Medical Liability Mutual insurance companies and Insurance Company Anderson gave a talk to about NYIA staff visited MLMIC’s the latest happenings on the office in Latham, New York to JULY 16 legislative and regulatory learn about the company and Member Company Visit at fronts in New York State. discuss the New York State insurance marketplace. Leatherstocking Cooperative Insurance Company NYIA staff met with employees of Leatherstocking Cooperative in Cooperstown, New York to gain insights on company activities and the insurance industry in New York.

JULY 9

Member Company Visit at Mid-Hudson Co-Operative Insurance Company Cassandra Anderson spent a day in Montgomery, New York at Mid-Hudson’s company headquarters and had the JULY 11 opportunity to meet their JULY 16 Member Company Visit at employees and learn more American International Group, Inc. Member Company Visit at about the work they do. NYIA staff met with AIG at their Ostego County Patrons office in Latham, New York to talk NYIA Staff visited Ostego about their experiences in New County Patron’s office in York State. Schenevus, New York to discuss their company and the New York insurance market.

22 • Your NY Connection Magazine www.nyia.org • Third Quarter 2018 • 23 Out & AbOut

JULY 20

Foodbank of the Southern Tier Tour de Keuka NYIA supported Wayne Cooperative Insurance Company’s participation in a charity bike ride in Hammondsport, New York, an organization that provides thousands of meals to people in need in the Southern Tier.

JULY 23–JULY 24

Florida Insurance Council Meeting Ellen Melchionni participated in Florida’s largest insurance trade association meeting.

JULY 17

Member Company Visit at Sterling Insurance Company NYIA staff visited Sterling Insurance Company’s office in Cobleskill, New York to learn more about their company.

JULY 18–JULY 19

Guy Carpenter Symposium Ellen Melchionni attended a symposium hosted by Guy Carpenter and had the opportunity to connect with many NYIA members.

22 • Your NY Connection Magazine www.nyia.org • Third Quarter 2018 • 23 by Kaitlyn Emory New York Insurance Association, Inc. givingback SecurityMedical LiabilityMutual Mutual Insurance Insurance Company Company considers (MLMIC) themselvesrecently developed “one big family.” a company-wide They have been charitable doing businesseffort that in theythe Fingerdeemed Lakes “Volunteerism area for over Day.” 130 Whenyears andMLMIC take Services pride in president,their “one big Michael family” Schoppmann, giving back MLMIC Employees Have toannounced local families support in the for community. an organized Several company of their employeescommunity serviceare either program, survivors it was and/or easy tohave get lostthe a Desire to Help Others familyrest of members the company to cancer. on board. The “The Cancer MLMICharities Resource Centerand Fundraising of the Finger Committee Lakes is an oversees organization Volunteerism where locallyDay and raised put the funds wheels benefit in motion,” the local Marc branch Craw, directly, senior socounsel participating of MLMIC in said. their “The Walkathon/5K drivers of this is atype great of wayevent for are the employees employees and to their band desire together to help for aothers.” cause that is close to their hearts while giving back. MLMIC has four offices across New York State, Thethe Latham2017 Walkathon/5K office recently was celebrated the third theiryear that first SecurityVolunteerism Mutual Day chose by to teaming sponsor upa corporate with Albany’s team. HeatherVeterans Harrison, Miracle Center,a Security (VMC). Mutual The VMC employee, Albany hadseeks an to instrumental enhance veterans part inand organizing active-duty a teammilitary of 18personnel’s employees lives and/or by providing family members. basic life Eachneeds team like memberclothing, medicaltook the supplies, time to counseling, raise funds, job participate assistance and cheerhousing each needs. other MLMIC on during plans the to event. return to VMC Albany in the future and hopes to continue to “Thecultivate Security their Mutualphilanthropic employees relationship. find that coming together to support those facing cancer in the communityMLMIC also mosthas offices rewarding,” in Long Lisa Island, Kanellis, New CoporateYork City Secretary,and Syracuse. said. Each“In addition, location hasthey participatedfind comfort in in a knowingVolunteerism they Dayare supportingthis year, extending each other their in an helping event thathands has to had organizations a direct impact like the on Ronaldthem individually McDonald orHouse as a Charities group.” Security and Smile Mutual Farms will Inc. continue“Employee- to participatevolunteers arein theencouraged Cancer Resourceto take an Center active roleof the in Fingerchoosing Lakes the Walkathon/5Kcharity and work for manytogether years on to the come. day of the event,” Marc Craw, senior counsel, of MLMIC Securitysaid. “These Mutual actions tries contribute to find toways sharing to give a special back toaccomplishment their community outside all ofyear the long, office this and includes fosters providinggood will withina “Miracle the company.”Christmas Day” by adopting local families, donating blood to the American RedMLMIC Cross and and their participating employees in contributeUnited Way’s to their“Day ofcommunities Caring.” These year-round events donating bring their time employees and goods togetherto Toys outside for Tots, of the office, Pediatric allowing Brain them Cancer to give at backthe UCSFto the Benioff community, Children’s all the Hospital while learning and juvenile more aboutdiabetes each organizations. other. MLMIC’s Volunteerism day is in its infancy but is already off to a solid start Kaitlynthanks toEmory the supportis NYIA’s of strongadministrative management assistant. and Youdedicated can employees.reach Kaitlyn at [email protected] or 518.432.4227. Kaitlyn Emory is NYIA’s administrative assistant. 24 • Your NY Connection Magazine You can reach Kaitlyn at [email protected] or 518.432.4227.

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PO Box 13059, Albany, NY 12212 • 518.355.8363 • 518.355.8639 fax • [email protected] WILD FIRES by Sue C. Quimby, CPCU, AU, CIC, CPIW, DAE and Nils F. Deacon MSO, Inc.

26 • Your NY Connection Magazine NOT JUST A WEST COAST PROBLEM

ildfires cause billions Last year was a record year for wildfires. In 2017, 71,499 of dollars in damage, wildfires burned about 10 million acres according to the significantly impacting the National Interagency Fire Center. This is nearly twice as insurance industry. While many fires as occurred in 2016. In California alone, nearly they may be perceived to $12 billion in claims were filed. The Thomas wildfire beW a western issue, the fact is that almost all states are at that time was the largest in the state’s history. The affected by wildfire, with 38 states at serious risk. From fire lasted over a month, burning over 281,000 acres the Atlantic Coast Pine Barrens to the Pacific Northwest from December 4, 2017 through January 12, 2018 and rainforests and all areas in between, this hazard has destroying at least 1,063 structures according to the nationwide impact. California Department of Forestry and Fire Protection. This year is already proving to be challenging with the The Issue at Hand Mendocino Complex Fire, which has burned more than 300,000 acres to date and is not yet contained, now The New York Department of Environmental Conservation being California’s largest wildfire ever recorded. (DEC) defines wildfires as unplanned or unwanted fires burning vegetation in areas where development is Closer to home, in May 2018, a wildfire in the New York minimal or nonexistent. They may also be referred to as Catskill region destroyed 27 bungalows as reported forest fires, brush fires, grass fires, range fires, ground in Wildfire Today. A July 2018 wildfire in Flat Rock fires or crown fires. While this definition applies to Altona, which is in Clinton County, New York spread to forested areas, the corollary is Wildland-Urban Interface over 547 acres according to the area’s local paper, the fires, which are wildfires which burn or threaten to burn Press-Republican. The newspaper reported that 20 fire buildings and other structures. companies and 212 firefighters from as far away as northern Vermont and southern Quebec were called in to fight the blaze that burned for five days. The origin of the fire is unknown, but no structures were threatened. An interesting footnote is that Flat Rock is home to the jack pine, which requires fire for the seed cones to open and germinate. In this instance the fire had an upside, so while not all consequences of fires are detrimental, positives are rare.

Nationwide there has been a steady progression of wildfire losses. The Insurance Institute for Business & Home Safety (IBHS) reports that the time period from

www.nyia.org • Third Quarter 2018 • 27 The number of wildfires varies in states widely year by year. Statistics for 2017 may surprise some, but a few Mid-Atlantic States have a large number of these events. New Jersey had 735 wildfires with 5,144 acres burned. Pennsylvania had 537 wildfires with 1,632. New York State had a good 2017, with only 57 wildfires with 191 acres burned as reported by the National Interagency Fire Center.

However, over a longer period, 1991–2015, the New 1985 to 2000 saw an average of 400 homes destroyed York Ranger force fought 5,984 wildfires with 53,896 by major wildfires annually. For the period 2012-2016, acres burned according to DEC. The leading human an average of almost 3,500 homes were destroyed by activities that caused wildfires in New York for the these events. period 2001–2015 were debris burning, arson and campfires. Smoking is another leading cause. New York The evidence is strong that the destruction will continue. is divided into Fire Danger Risk Areas (FDRA) showing The number of homes built in previously uninhabited the five leading causes of fires in each FDRA. By way wooded areas has expanded. These areas are part of the of contrast, the Long Island area had arson causing Wildland Urban Interface (WUI), with 44 million homes 78 percent of fires, with the Adirondack FDRA having and 120 million people exposed to wildfires in the campfires as the leading cause at 41 percent. The Long contiguous United States according to the United States Island FDRA also has the highest rate of wildfires per Department of Agriculture. This is one of the primary square mile in the state. reasons for the surge in wildfire losses. The high population density in Long Island certainly The National Fire Protection Association (NFPA) has contributes to the high fire rate per square mile. New identified a number of reasons for the increase in wildfire Jersey faces similar pressure in the form of development frequency and severity. Homes and other structures are of formerly wooded areas for residential housing. While built in previously uninhabited areas. Over several the New Jersey Pinelands has restricted development, decades, the strategy of suppressing naturally occurring human activity that causes ignition is inevitable. The wildfires has resulted in a buildup of surplus fuel in the New Jersey Forest Fire Service reports that In the wildlands. Higher temperatures and increasing periods Pinelands, some areas have fire loads of over 20 tons per of drought dries out the added fuel. Drier fuel means acre, which equates to over 1,300 gallons of gasoline per fires spread faster and are more difficult to put out. acre. When an ignition source meets this fuel, extensive, Additionally, there are more lightning strikes, stronger costly wildfires have occurred. winds and a longer fire season. Mitigation Measures For geographical and insurance purposes, various regions of the country have been identified when addressing the Fire services have used prescribed burning for many years. type of wildfire hazards each face. The Mid-Atlantic/ New Jersey has used this tool since 1928. New Jersey Northeast region includes New York State and New defines a prescribed burn as, “the skillful application of Jersey. The risks vary because of topography, climate, fire under exacting conditions of weather and fuel in a building codes and style of buildings exposed to wildfire predetermined area, for a specific purpose to achieve according to IBHS. specific results.”

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For more information call (800) 935-6900 or visit us online at msonet.com RECOMMENDATIONS FOR COMMUNITIES Insurance professionals can encourage their REDUCE WILDFIRES DESTRUCTION clients to undertake the NFPA’s recommendations seeking to common-sense steps reduce destruction by wildfires. outlined by the NFPA to 1 Require property owners to manage hazardous vegetation and maintain protect their homes and their properties. communities. 2 Reduce fuels around homes and within the wildland/urban interface through community mitigation New York and New Jersey fire services both use this tool. programs and by educating residents These burns reduce the fire loads in the forest, helping of the dangers. to greatly control wildfires. It is not uncommon to see these prescribed burns. “Every year, during the late winter, early spring I encounter prescribed burns in the 3 Require ignition-resistant construction materials for new forested areas I am traveling through,” Ed Wynne senior developments and retrofits. inspector at MSO, Inc., said. “Though possibly troubling, the fire service is very good at informing the public that things are well under control.’’ This is an annual exercise, 4 Restrict development within high wildfire risk areas such as steep with the New Jersey Fire Service indicating that they slopes. burn between 10,000–20,000 acres each year.

There are a variety of other measures that states, 5 Incentivize developers to plan open space and recreational trails, which communities and individuals can implement to reduce can serve as fuel breaks in the event the risk of wildfire. NFPA can provide guidance. Their of wildfire. Firewise program helps people adapt to living with the threat of wildfires. NFPA Standards such as NFPA 1141, Fire Protection Infrastructure for Land Development 6 Encourage agricultural lands to buffer development from wildfires. in Wildland, Rural and Suburban Areas and NFPA 1144-Reducing Structure Ignition Hazards from Wildland Fire are very valuable. 7 Require risk-reduction features in new subdivisions, such as minimum road widths, secondary access and Necessity For Insurance adequate water supply. Insurance professionals can encourage their clients to undertake the common-sense steps outlined by COMMUNITIES the NFPA to protect their homes and communities. As

30 • Your NY Connection Magazine knowledgeable insurance experts, they can advise them to be appropriately insured in the event of a wildfire RECOMMENDATIONS catastrophe. For residential customers, the first step is FOR HOMEOWNERS their homeowner’s policy.

A standard homeowners policy will likely pay to rebuild REDUCE WILDFIRES or repair the home and related structures on the DESTRUCTION property. Homeowners and renters policies will typically NFPA’s recommendations seeking to cover the cost to replace belongings lost in a fire and reduce destruction by wildfires. possible subsequent looting or vandalism. If the home is uninhabitable because of wildfire, the policy may pay 1 Cut branches overhanging the home, for additional living expenses including meals. Vehicles trim overgrown shrubs and keep with comprehensive auto coverage will be replaced or trees from growing too close to the repaired. Businessowners policies will typically provide home. coverage for the building, inventory and equipment. Business interruption coverage can also apply if it was 2 Rake up leaves, mow tall grasses purchased by the policyholder. and remove excess tree branches and other debris from within 100 For the insured, if it is necessary to file a claim, it is feet of the house. important to contact their insurance agent or company as soon as possible. The insured should have been 3 Keep gutters clear of dead leaves, previously advised to keep a home inventory so a ``proof pine needles and other flammable of loss’’ can be established when the adjuster comes. debris; replace or repair loose or Also, they should be advised not to throw damaged missing shingles or roof tiles to items away so an accurate assessment of the loss can be prevent ember penetration; reduce made. Of course, if there is a safety problem with keeping embers that could pass through damaged things, careful documentation with photos can vents in the eaves by installing provide additional proof. eighth-inch metal mesh screening; clean debris from exterior attic vents The catastrophic destruction caused by wildfires is and install metal mesh. a serious concern for much of the country, including states like New York that are not often thought of as at 4 Repair or replace damaged or loose risk for wildfires. Knowing the extent of the hazard and window screens and any broken meaningful mitigation steps should be a key component windows. of a company’s underwriting process. 5 Never store flammable materials Sue C. Quimby is assistant vice president, media under decks or porches and remove editor, client services and training; senior product dead vegetation and debris from development analyst for MSO, Inc. (The Mutual Service under decks/porches and between Office, Inc.). Nils F. Deacon is senior inspector for MSO, deck board joints. Inc. You can reach Sue at 201.857.9128 or squimby@ msonet.com. You can reach Nils at 201.819.6825 or [email protected]. HOMEOWNERS

www.nyia.org • Third Quarter 2018 • 31 The Tax Cuts & Jobs Act Implications For Property & Casualty Insurers by Thomas Barber and Steven Greene Mazars USA LLP

32 • Your NY Connection Magazine The Tax Cuts & Jobs Act Implications For Property & Casualty Insurers

The passage of the Tax Cuts and Jobs Act (TCJA) on December 22, 2017 had significant impacts on the insurance industry, both for domestic insurers and multinationals. In addition, states are wrangling with the effects that TCJA may have on their budgets and considering legislative action to counteract any negative effects of the TCJA. New York and New Jersey have already passed such legislation.

Throughout the article, where applicable, we highlight any New York state reactions and responses including any legislative actions specific to the TCJA. New York Governor Andrew Cuomo recently signed the fiscal year 2019 budget, making New York the first state to enact legislation in reaction to the TCJA. Even though property and casualty insurers are not subject to New York state income taxes, their non- insurance affiliates may be impacted by these provisions.

www.nyia.org • Third Quarter 2018 • 33 Corporate Provisions

Reduced Corporate Tax Rates

Under the old law, corporations were subject to graduated tax rates from 15% up to 35% depending on their taxable income. For tax years beginning after December 31, 2017, Net Operating Loss Changes TCJA amended the corporate rate to a flat 21% across all taxable income levels. For tax years beginning after December 31, 2017, TCJA repeals the two-year carryback AMT Repeal and AMT Credits Refundable for regular corporations (which will now also apply to life insurers) and limits the net TCJA repealed the Alternative Minimum Tax operating loss (NOL) deduction attributable (AMT) for years beginning after December 31, to post-2017 NOLs to 80 percent of taxable 2017. For tax years beginning after 2017 and income. Any remaining post-2017 NOLs can before 2022, any AMT credit carry forward be carried forward indefinitely. NOLs that balances at December 31, 2017 can offset were generated before January 1, 2018 are regular tax. Any remaining unused AMT grandfathered under the old NOL regime credits are refundable at 50 percent of the and, as such, are not subject to the 80 amount remaining each year to the extent percent restriction. they exceed regular tax through 2020, with any remaining AMT credit refunded in 2021. It should be noted that for P&C insurers, the old rules still apply (i.e., P&C insurers MAZARS INSIGHT: are still allowed the two-year carryback and a 20 year carry forward of NOLs, which can It should be noted that there is uncertainty still be applied to 100 percent of taxable as to whether AMT credit carry forwards that income, even for post 2017 NOLs). are now refundable by statute are subject to past or future section 383 limitations (due to ownership changes) and, if so, how a taxpayer MAZARS INSIGHT: should calculate the refunded amounts by year. Any AMT credit refunds appear to be Separate tracing of NOLs for pre and post 2017 subject to federal sequestration. Corporate Tax TCJA changes as well as for consolidated tax Sharing Agreements may need to be revised groups with both life and non-life insurance in order to consider the AMT credit refunds. companies may be necessary due to life non- life consolidation rules.

34 • Your NY Connection Magazine Work with industry-focused professionals that fit right into your organization.

Want a more insightful advisor? The choice is right in front of you. Our specialized industry team understands the unique challenges for insurance companies like you, including the regulations that affect you, new threats and opportunities you face and how to position your company for success through our tax, assurance and risk, internal audit and compliance consulting services.

Connect with us: Jason Jacobs, Partner [email protected] bakertilly.com l 212 378 9884 Want to receive our articles? Go to: bakertilly.com/subscribe

Baker Tilly refers to Baker Tilly Virchow Krause, LLP, an independently owned and managed member of Baker Tilly International. © 2017 Baker Tilly Virchow Krause, LLP Dividends Received Deduction

In general, for corporate shareholders receiving a dividend from certain domestic corporations, TCJA reduces the dividends received deduction (DRD) for the 70 percent and 80 percent brackets, to 50 percent and 65 percent, respectively. The 100 percent DRD remains intact for dividends from affiliated group members. The DRD provision is effective for tax years beginning after December 31, 2017.

Limitations on The Deductions of Business Interest (Sec. 163(j)) MAZARS INSIGHT:

For tax years beginning after December As insurers typically have sizable investment 31, 2017, TCJA limits the deduction of net portfolios, since the limitation is based off net interest expense to 30 percent of adjusted interest expense, we believe that this will not taxable income. There is an exemption likely impact most insurers. New York State has failed to show how this new limitation from these rules for taxpayers with average operates in light of existing New York State annual gross receipts for the three-year tax and City limitations on the deductibility of period ending with the prior tax year that do interest expense. not exceed $25 million.

36 • Your NY Connection Magazine Property & Casualty Insurance Company Provisions

Loss Reserve Discounting These provisions apply to taxable years beginning after December 31, 2017. For the TCJA modifies the computation of tax basis first taxable year beginning after December discounted unpaid loss reserves in the 31, 2017, the difference in the amount following ways: of the tax basis discounted unpaid loss reserves at December 31, 2017 versus 1. The interest rate used to calculate the amount determined as if the new tax the applicable accident year law had applied for that year, is treated discount factors is modified from as a transition adjustment. This transition the 60-month rolling average of the adjustment is brought into taxable income applicable federal mid-term interest on a straight-line basis over eight years rate (AFR) to an interest rate based beginning in 2018. on the corporate bond yield curve for the preceding 60-month period MAZARS INSIGHT: on investment grade corporate bonds. Generally, the corporate bond In general, the provision is expected to lower yield will be a higher interest rate the amount of tax basis discounted unpaid loss reserves resulting in an increase in than the AFR. taxable income. At the time this article was written, the new discount factors for 2018 2. The applicable loss payment patterns have yet to be published. for long tail lines of business are extended to a maximum of 24 years, rather than 15 years. However, the Proration length of the payment pattern for short tail lines remains at 3 years. Under pre-TCJA law, the deduction for losses incurred was reduced by 15 percent (proration 3. Repeal of the section 846(e) company percentage) of tax-exempt interest and the pay pattern election which allowed Dividends Received Deduction (DRD). TCJA an insurer to use its own historical increases the proration percentage to 25 payment patterns for discounting percent, which roughly equates to existing unpaid losses. law after-tax impact. This provision applies to taxable years beginning after December 31, 2017.

www.nyia.org • Third Quarter 2018 • 37 International Provisions

TCJA contains substantial changes to the Deemed Repatriation Of Deferred Foreign international taxation principles currently Income in effect, bringing the United States closer to a territorial-based regime and TCJA moves the United States from a curtailing the ability to defer tax on worldwide tax system to a participation foreign source income. Insurers need to exemption system by providing corporations pay particular attention to these provisions a 100 percent dividends received deduction if they are part of a global organization for dividends distributed by a controlled having intercompany charges and ceded foreign corporation (CFC). reinsurance transactions. To accomplish this transition generally Highlighted below are the most impactful requires that, for the last taxable year of provisions for insurers. Additionally, other a foreign corporation beginning before noteworthy international provisions are: January 1, 2018 all US shareholders of any CFC or other foreign corporation that 1. Deduction for foreign source is at least 10-percent US-owned but not dividends received controlled (other than a PFIC), must include in taxable income their pro rata shares of 2. Global Intangible Low-Taxed Income the accumulated post-1986 deferred foreign (GILTI) income (E&P) that was not previously taxed as of December 31, 2017 or November 2, 3. Deduction for Foreign Derived 2017, whichever amount is greater. Intangible Income (FDII) are also included in the TCJA Income inclusion is to be taxed (a Transition tax) at a 15.5 percent rate on accumulated New York legislation disallows the FDII post-1986 E&P held in the form of cash or deduction and requires taxpayers to add the cash equivalents, and an 8 percent rate on all deduction in calculating its New York State other E&P. To accomplish this, TCJA permits and New York City taxable income. a deduction (IRC §965(c)), in an amount necessary to result in the above tax rates. The New York legislation is silent as to its treatment of GILTI. Therefore, the GILTI TCJA allows a US shareholder to elect to deduction is included in calculating New pay the transition tax over eight years at 8 York State and City taxable income. percent for the first five years, 15 percent in the sixth year, 20 percent in the seventh year and 25 percent in the eighth year.

38 • Your NY Connection Magazine NYIAad_fullpgE2V.pdf 1 9/28/16 12:16 PM MAZARS INSIGHT: New Base Erosion And Anti-Abuse Tax

For corporate taxpayers, the New York TCJA introduces a base erosion and anti-abuse tax (BEAT), legislation decouples from federal treatment which essentially operates as a minimum tax applicable of repatriated foreign income under IRC to taxpayers that are subject to US net income tax, have §951, essentially categorizing this income average annual gross receipts equal to or exceeding as “exempt CFC income,” thereby excluding it $500 million (over a three year period ending with the from New York State Corporate Tax as follows: preceding tax year) and have paid or accrued certain related party deductible amounts included in regular • E&P from foreign corporations that taxable income (i.e., base erosion payments). Note that are not included in the taxpayer’s the gross receipts test is based on controlled group rules combined return as “exempt CFC income,” and this is therefore not which would require inclusion of foreign members of taxable in New York State or New the controlled group, but only to the extent the foreign York City. members’ gross receipts relate to effectively connected income (ECI). This minimum tax equals the excess of 5 • Taxpayers are required to add back percent (10 percent beginning in 2019 and 25 percent the IRC §965(c) deduction, since the for tax years beginning after December 31, 2025) of E&P subject to the transition tax is a taxpayer’s “modified taxable income” for a tax year considered “exempt CFC income.” over the taxpayer’s regular tax liability for the tax year, However, there is no change to with an allowance for certain credits under Chapter 1 the existing provision allowing of the Code. direct or indirect attribution of the taxpayer’s interest deductions Modified taxable income is calculated by adding back related to the exempt income, or certain deductions attributable to payments to related the election which would allow foreign companies and related NOLs. For insurance the taxpayer to reduce its total exempt income by 40 percent as an companies, premiums paid for gross premiums written alternative to expense attribution. on insurance contracts during the taxable year are also considered base erosion payments. • The legislation provides relief from underpayment of estimated taxes There are certain exceptions to the BEAT tax for small related to any interest expense tax paying groups (i.e., taxpayers with a base erosion attribution related to this “exempt percentage of less than 3 percent for the tax year) as well CFC income.” This exemption as, certain types of payments excluded from the definition applies to taxable years beginning of what constitutes base erosion payments. Unlike the on or after January 1, 2017 and repealed AMT regime, any BEAT in excess of regular tax before January 1, 2018. will not be creditable in the future.

The Internal Revenue Service issued Thomas Barber is a partner with Mazars and Steven proposed regulations governing the so-called Greene is a director with the firm. You can reach Tom repatriation tax on August 1, 2018, detailing which corporate taxpayers are subject to the at [email protected] or 267.532.4307. You tax, which assets are on the hook and how to can reach Steve at [email protected] or pay in installments. 267.532.4388. Harold Hecht, Julie Montrone, Seth Rabe, and Erin Schatzle contributed to this article.

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120 Broadway, Suite 1010, New York, NY 10271 | www.morrisonmahoney.com Déjà-Vu All Over Again State Senate Remains New York’s Political Battleground by Javier R. Tapia New York Insurance Association, Inc.

42 • Your NY Connection Magazine Déjà-Vu All n 2008 Democrats in New York gained control of the state Senate for the first Over Again time since 1965, winning a 32-30 seat majority. Democrats quickly lost control of power in the Senate in 2009 before State Senate Remains Iregaining it back in the summer of the same year, thus beginning an ongoing cycle of see- saw battles with Republicans and Democrats either alternating in power for brief periods, New York’s Political sharing in power through negotiated majority coalitions, or retaining slim majorities to be tested every two years at the ballot box. The Battleground 2018 election cycle will prove no different as the tenuous grip of the Senate Republicans, who currently control the chamber despite being at a numerical disadvantage, will once again be tested.

Forces in Motion

In recent years one of the major variables in determining control of the State Senate was the Independent Democratic Conference (IDC). Formed in 2010, the IDC was initially a breakaway group of four democrats led by Senator Jeffrey Klein and fellow senators Diane Savino, David Valesky and David Carlucci who stated they were unable to support the leadership of the Senate Democratic Conference, headed at that time by Senator John Sampson.

www.nyia.org • Third Quarter 2018 • 43 Beginning in 2012, the IDC entered into the IDC was tremendous. So long as they a power sharing agreement with the were sharing power with Republicans, the Senate Republican Conference, granting mainline Senate Democrats would have had the Republican-IDC coalition a governing to prevail in eight democratic primaries and majority of 32-30 against the mainline win against several Republican candidates Democrats. Additionally, Senator Simcha in general elections to take power in the Felder, newly elected to the Senate in 2012, Senate. decided to caucus with the Republican Conference granting the Republican-Felder- This electoral cushion enjoyed by the Senate IDC coalition a total of 33 Senators. Over Republicans has disappeared, however. In time the IDC grew in numbers and by April 2018, after mounting pressure from all January 2018 had a total of eight members, sides, including Governor Andrew Cuomo, with the original four founders joined by New York City Mayor Bill de Blasio, and senators Marisol Alcántara, Tony Avella, national Democratic Party leaders, the IDC Jesse Hamilton and José Peralta. dissolved. This realignment immediately shifted the dynamics in the New York These additional IDC members gave the State Senate as it brought the Senate Republican-Felder-IDC majority coalition Democratic Conference into a numerical a total of 39 Senators to the mainline tie with the Senate Republican Conference Democrats’ 21. The electoral impact of with 31-31 senators each. Only Senator

Current New York Senate Composition

Democrat Former Independent Democrat Conference Democrat caucusing w/ Republicans Republican

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SENATE PARTY ANALYSIS DISTRICT ENROLLMENT

D: 64,337 Without incumbent Senator Tom Croci rd R: 56,376 3 running, this seat is a toss-up. B: 48,127

D: 77,226 Incumbent Senator Marcellino won 5th R: 72,256 reelection in 2016 by 1,759 votes. This seat b: 58,196 leans Republican.

D: 87,591 Incumbent Senator Elaine Phillips won the 7th R: 63,296 election in 2016 by 3,409 votes. This seat B: 56,434 leans Republican.

D: 84,845 Incumbent Senator Brooks narrowly won 8th R: 74,172 in 2016 by 314 votes. This seat is a toss-up, B: 51,366 but leans Democrat.

D: 65,669 Without incumbent Senator Bill Larkin th R: 51,595 39 running, this seat is a toss-up. B: 38,262

Without incumbent Senator John Bonacic D: 64,410 running, this seat is a toss up. This district nd R: 53,441 42 leans Democrat, but Bonacic served in the B: 42,785 seat for nearly 20 years as a Republican.

D: 57,955 This seat leans Republican, but without 43rd R: 63,958 incumbent Senator Kathleen Marchione B: 53,234 running, the race should be competitive.

Without incumbent Senator John D: 61,498 DeFrancisco running this seat could be th R: 62,316 50 one to watch. The Republican seemingly B: 48,740 has better name recognition.

46 • Your NY Connection Magazine Felder’s continued caucusing with the term as Governor, where he faces spirited Republicans granted the GOP a 32-31 control newcomer, Cynthia Nixon, in the Democratic of the chamber for the remainder of the 2018 Party primary. The winner would square legislative session. Even with Felder, the GOP off against Marcus Molinaro, the Dutchess finished the 2018 legislative session in a County Executive and Republican nominee. 31-31 de facto tie with Democrats as Senator In addition to Democratic and Republican Thomas Croci, a United States Naval Officer, candidates, this year’s election will also see returned to active duty leaving the chamber minor party candidates on the ballot. deadlocked after completion of the state budget. The New York State Constitution Nixon, an actress who most notably appeared requires a majority of senate votes (i.e. 32) on the HBO hit show, Sex and the City, has to pass legislation. This made for several already secured the Working Families Party moments of high tension in the chamber as nomination for Governor, and short of the the Democrats threatened to use Lt. Governor political machinations that would be needed Kathy Hochul as a tie-breaking vote on to remove her from the ballot after the state certain matters. The Republicans countered primaries (assuming she is unable to unseat by offering a legislative override of a veto Cuomo as the Democratic Party candidate), Governor Cuomo had previously delivered on she would appear as the Working Families full-day statewide kindergarten with his Lt. Party nominee for Governor in November. Governor presiding over the chamber. Furthermore, Howie Hawkins has announced that he will run again as the Green Party In addition to the dissolution of the IDC candidate for Governor, and former Syracuse another important variable heading into the mayor, Stephanie Miner has also announced 2018 elections are the retirements announced that she will run for Governor as a candidate by five Republican senators: William Larkin, of the Save America Movement. While John Bonacic, John DeFrancisco, Kathleen Miner’s Save America Movement remains Marchione and Thomas Croci. Of course, untested at the polls, Hawkins and the Green these retirements raise the stakes for Senate Party were able to garner nearly 5 percent Republicans heading into the fall as they of the vote in the 2014 gubernatorial will have to hold all of these seats with elections, outperforming both the Working new candidates, or flip current Democrat Families and Independence parties, and incumbents, to retain a majority in the New York political observers will again be state senate with the presumption that watching closely to see what percentage of Senator Felder will continue to align with the electorate minor party lines such as the Republicans. Green Party are able to receive at the polls.

While the state senate continues to be the However, whether a crowded ballot gives battleground that political observers in New Republican challenger Molinaro a path to York will be watching closely this fall, another victory in November remains a longshot major feature of the political landscape proposition given Cuomo’s tremendous in New York in 2018 are the statewide fundraising advantage of $31 million to elections, in particular, the governor’s race. Molinaro’s $1 million. Incumbent, Andrew Cuomo, is seeking a third

www.nyia.org • Third Quarter 2018 • 47 Although they are unlikely to affect down Venditto, by 314 votes in the 2016 election. ballot races as much as the Governor’s Commentators have speculated about how race, another statewide race that may much Venditto’s candidacy was damaged by drive the interest of some voters is the the indictment of his father, then Oyster Bay New York Attorney General’s race. The Supervisor, on corruption charges 19 days seat unexpectedly became open when before elections. incumbent Eric Schneiderman resigned in scandal amid allegations that he had This year Brooks (a retired firefighter and abused several women with whom he was insurance broker) will square off against intimately involved. Republican Jeffrey Pravato, the mayor of Massepequa Park, which is a key municipality Seeking to replace Schneiderman for the within the 8th Senate District. In total there powerful office of Attorney General is a are 235,069 voters in the district, with crowded Democratic primary field including 84,845 actively enrolled Democratic voters New York City Public Advocate Letitia and 74,172 actively enrolled Republican James, Congressman Sean Patrick Maloney, voters. Voters who are unaffiliated with any law professor and former gubernatorial party (also known as “blank” voters) are a key candidate Zephyr Teachout and attorney block, and in conjunction with swing voters Leecia Eve, the winner of which will face within each party, will often determine the attorney and Republican candidate Keith outcome of elections. In the 8th Senate Wofford in November. District there are 51,366 actively enrolled unaffiliated voters. Accordingly, given the In addition to the Attorney General’s tightness of this race in 2016 it is safe to office, other important statewide offices say that it remains a battleground district include the State Comptroller’s race where that leans Democrat with a Democratic incumbent Thomas DiNapoli will face incumbent going into November. Republican endorsed candidate Jonathan Trichter, as well as a United States Senate The seat in the 39th Senate District is seat where incumbent Kirsten Gillibrand currently held by William Larkin who will face Republican challenger Chele Farley. has announced his retirement. Vying for this open seat are Assemblyman James Key State Senate Races Skoufis running on the Democrat line and Republican candidate Tom Basile who is With that political backdrop in mind, given deputy supervisor of the town of Stony the narrow margins in the New York Senate, Point. This district has 65,669 actively a single race can determine the balance enrolled Democrats, 51,595 actively of power. To that effect, two races political enrolled Republicans, and 38,262 actively observers will be closely following this fall enrolled unaffiliated voters. Basile was are the 8th Senate District in Long Island recently endorsed by the Independence and the 39th Senate District in the Hudson Party of New York giving him an additional Valley. The seat for the 8th Senate District is ballot line, however, Skoufis is a two-term occupied by incumbent senator John Brooks incumbent from the Assembly making this a who narrowly defeated Republican Michael race to really watch.

48 • Your NY Connection Magazine In addition to Senate districts 8 and 39, other Conclusion key races include Senate District 3 where the retirement of Republican Senator Tom Croci Perhaps the figure who may have the makes this an open seat where Assemblyman biggest impact on this year’s elections in Dean Murray, who is a Republican, will New York State is the New Yorker who face Democrat candidate and Suffolk County now occupies the White House. Of course, Legislator Monica Martinez. President Trump will not be on the ballot this fall, but certainly voters’ attitudes In Senate District 5 Carl Marcellino who toward the President, whether favorable or won the 2016 election by 1.2 percentage unfavorable, could drive voters to the polls points will face Democrat candidate and impact down ballot races such as those James Gaughran who is chairman of the for State Senate. Suffolk County Water Authority. Senate District 7 where Republican incumbent Bills that would negatively impact the Elaine Phillips, who won in 2016 by 2.5 industry such as expansion of bad faith percentage points, will face Democrat claims or an increased tax burden on the candidate Anna Kaplan who is a North insurance industry (already one of the Hempstead town board member. most heavily taxed industries in the state) might be viewed more favorably if balanced Senate District 42 is an open seat due to government were lost in Albany. This is Senator John Bonacic’s retirement. Orange especially the case given the supermajority County Clerk Annie Rabbitt will face the the Democrats will almost certainly winner of the Democratic primary between continue to enjoy in the Assembly and Rosendale Town Councilwoman Jen Metzger Governor Cuomo being heavily favored to and community organizer Pramilla Malick. be re-elected. Senate District 43 is an open seat as a Anything is certainly possible. A sleeper race result of Senator Kathleen Marchione’s can turn into a huge upset, and just one race retirement. The candidates seeking to can have a profound impact on whether replace her are Republican candidate Republicans or Democrats are the majority Daphne Jordan, who is a councilwoman party in the Senate. in the Town of Halfmoon and Marchione’s legislative director and Democrat Aaron Javier R. Tapia is NYIA’s director of Gladd, deputy director of public policy for government affairs. You can reach Javier Governor Cuomo. at 518.432.4227 or [email protected].

Lastly, Senate District 50 held by longtime and retiring Senator John DeFrancisco will also be an open seat heading into this year’s elections. Republican Robert Antonnaci who is Onondaga County comptroller and Democrat West Genesee high school teacher John Mannion will face off in November.

www.nyia.org • Third Quarter 2018 • 49 New & Noteworthy

2018 Ward’s Top 50 List Eric Schmader is president and NYIA member companies Erie Insurance Group, Grinnell CEO of Farmers Mutual Fire Mutual Group, Progressive and Union Mutual of Insurance Company in Marble, Vermont Companies were recently named to Ward’s Top Pennsylvania. Schmader serves on 50 property-casualty insurance carrier list for 2018. the company’s board of directors. Eric was CFO and treasurer prior The 28th annual list of the Ward’s 50 recognizes to being appointed president. insurance carriers with outstanding financial results in Schmader joined Farmers Mutual in 2003 after working the areas of safety, consistency and performance over a in the banking industry. five-year period. Carriers must possess a level of financial stability necessary to have the potential to grow while Schmader is active in the Pennsylvania Association of maintaining strong financial and underwriting results Mutual Insurance Companies (PAMIC). He is a member and are scored on the following five categories: five- of the National Association of Mutual Insurance year average return on equity, average assets and total Companies (NAMIC) Board of Directors and Farm Mutual revenue; five-year growth in revenue and surplus; and Conference Board and is a director for the Mutual five-year average combined ratio. Inspection Bureau. Schmader earned a bachelors degree in office systems from Indiana University of Pennsylvania. He holds the NAMIC Professional Farm Mutual Manager (PFMM) designation. MSO Elects Board Members

The Mutual Service Office, Inc recently elected two new board members. Edward Arovas will serve on the Union Mutual Announces Audit Committee and Eric Schmader will serve on the Compensation Committee. New Hire

Edward Arovas is president and Sarah Jarvis joined Union Mutual COO of Amalgamated Casualty Companies as corporate counsel Insurance Company. He is on and human resources manager Amalgamated’s board and is this past July. an officer of American Risk Management, Inc. Jarvis was most recently a staff attorney for The Vermont League Prior to joining Amalgamated, Arovas started his own of Cities and Towns and has also served as the deputy technology consulting company. He received a masters state’s attorney for Washington County and as a three- in information systems from The George Washington term city councilor. She currently sits on the board of University School of Business and a bachelors in directors for the Montpelier Development Corporation, psychology from the University of Connecticut. and for Montpelier Alive, the downtown association.

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Brian F. Mark Larry E. Waters Eric T. Boron Joel R. Appelbaum Buffalo Long Island Albany [email protected] [email protected] [email protected] [email protected] 716-849-8900 631-465-0700 518-786-1800 New & Noteworthy In Memoriam

Grinnell Mutual recognized Richard T. Carroll of New Canaan, Connecticut and Harwich, Massachusetts, died unexpectedly on July 20, for Workplace Health 2018. He is survived by his beloved wife of 36 years, Susan Carroll, his daughter Molly, son-in-law Bill and Achievement granddaughter Elizabeth Grace Cole of Hingham, Massachusetts, and his sister Ruth Ryan of Hilton Head, Grinnell Mutual recently achieved Gold level recognition South Carolina. for taking significant steps to build a culture of health in the workplace by the American Heart Association. Carroll was the president of American Transit Insurance Company (ATIC) in Brooklyn, New York, where he had The American Heart Association created the Index with worked for 34 years. “We have lost a deeply admired its CEO Roundtable members, a leadership collaborative leader, and the world has lost such an amazing human of more than 40 CEOs from some of America’s largest being,” Ralph Bisceglia, chairman of the board and chief companies who are committed to applying evidence- executive officer of ATIC said. “Those of us who have been based approaches to improve their employees’ overall fortunate enough to know and work with Richard have health. The Index uses science-based best practices to lost a dear friend, strong partner, and an inspiring mentor. evaluate the overall quality and comprehensiveness of He always kept the well-being of our people (employees, their workplace health programs. A unique feature of the business partners, and clients alike) at the top of his Index is that it calculates an average heart health score mind. Throughout his 34 years with the company, Richard for employees of participating companies that securely was deeply dedicated to the welfare of the ATIC family, submit aggregate health data. helping guide and lead us with unsurpassed talent, exceptional intuition and perseverance.” More than 1000 companies completed the Index assessment this year and, of those companies, 75% Carroll was a graduate of both Fairfield Prep and Boston received either Gold, Silver, or Bronze recognition. College. He proudly served in the Army during the Companies receive benchmarking reports, which allow Vietnam War. He was a member of the New York Athletic them to identify potential areas of improvement so Club for 35 years. He was also a member of Mill River that they can advance their annual performance and Country Club and Yale Golf Club. recognition in the Index and help their workforce move toward ideal heart health. The New York Insurance Association and its members offer condolences to the Carroll family and to American Grinnell Mutual is “beyond honored to have received Transit Insurance Company in their time of loss. this award,” wellness program manager Lydia Erb said. “We are constantly striving to create a culture that encourages healthy lifestyle behaviors. We hope to continue this trend in the years to come.”

Do you have news you would like to share? Please send releases and announcements to Kaitlyn Emory at [email protected].

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