Amherst’s Investments Included in ICIJ Paradise Papers
Issue   |   Tue, 12/05/2017 - 19:15

The International Consortium of Investigative Journalists released 13.4 million financial documents, termed the Paradise Papers, on Nov. 5 that name more than 100 other educational institutions, including Amherst College, as having had investments in offshore accounts.

There are a wide variety of uses for offshore accounts, including the ability to invest money in fossil fuels or avoiding taxes on endowments, according to The New York Times.

Eleven other schools in Massachusetts were also named in the documents, including Williams, Tufts, Smith and Boston University, among others.

Chief Financial and Administrative Officer Kevin Weinman said in an email that Amherst “does not use ‘offshore tax havens,’ nor does the college use any structure for the purpose of avoiding taxes or hiding what it owns.”

The reason Amherst is named in the documents is because of its investment in an insurance entity called SCUUL (School, College and University Underwriters, Ltd.) in 1986, he said.

At the time, schools were having difficulty finding insurance in the commercial market that did not charge exorbitant premiums or consider the institutions too high-risk to insure, according to Weinman.

Not knowing whether coverage would continue from year to year was also an issue, according to an article in Education Week. Since many colleges across the country were having similar difficulties, the National Association of Independent Schools (NAIS) invested in SCUUL in order to get the company started, according to Weinman.

“NAIS was simply trying to create an insurance option for schools to address gaps in the commercial insurance market, whereby existing insurers were not covering the needs of higher education at all (e.g., athletics injuries) or were doing so at an exorbitant price,” Weinman said. “There also was a lack of certainty that coverages would continue to be available year over year.”

This lack of consistent and affordable coverage in the commercial market is what led Amherst to invest money in the company to begin with, Weinman said.

SCUUL provided coverage for a variety of issues that a college might face, such as “catastrophic losses that could negatively impact our students, our operations, and our financial health,” according to Weinman.

While an investment was required to become a member of SCUUL, this investment was not one that generated any profit for the college.

Though Weinman did not work for Amherst at the time, he said the investment went toward “start-up funding and to build reserve capacity for the new entity to fund operations and pay out claims” rather than toward anything that would allow the college to make a profit.

“SCUUL was not an investment to generate financial returns to fund Amherst operations the way an endowment investment is intended to do,” Weinman said. “Instead, the upfront investment was a paid-in-capital requirement that was necessary to access insurance coverages.”

SCUUL was originally based in Bermuda because the U.S. had legislation at the time that made it very difficult for a captive insurance company like SCUUL to form domestically and provide insurance for institutions all across the country, Weinman said.

Since then, states like Vermont have passed legislation that allows for “affinity groups” like educational institutions to form risk retention groups that are based in the U.S. rather than offshore, according to the Michael Horning, chief financial officer of United Educators, the company that Amherst currently gets insurance from.

Once the first piece of legislation was passed in late 1986, SCUUL began the process of restructuring and merging with United Educators.

Amherst has had no relationship with SCUUL or any other offshore insurance entity for more than a decade, according to Weinman.

The school has since self-insured, for the most part, through a cooperative entity called the Collegiate Catalyst Fund that is based in Vermont and includes Mount Holyoke, Smith and Hampshire, according to Weinman.

The school also has some insurance from United Educators to “cover large losses that self-insurance can’t adequately protect against,” Weinman said.

Chair of the Board of Trustees Cullen Murphy ’74 said in a statement to The Student, “There are legitimate uses for offshore structures, but Amherst College does not employ any mechanism to hide what it owns or to avoid paying taxes.”

President Biddy Martin could not be reached for comment by press time.

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