Posted on 17 Oct 2011
Legislation to block tax deductions on reinsurance premiums paid to offshore affiliates is back before Congress, with familiar rivals either decrying it as a protectionist tariff or hailing it as the closing of a tax haven pipeline.
Rep. Richard Neal, D-Mass., introduced HR 3157, which would strictly limit the tax deductibility of reinsurance premiums paid by U.S.-based, foreign-owned insurers to non-U.S.-based affiliates. Sen. Robert Menendez introduced a companion bill, S 1693.
The bill would close a loophole that allows non-U.S. insurers to benefit, William R. Berkley, chairman and chief executive officer of the W.R. Berkley Corp., told Best's News Service. It is about essential fairness and parity for the domestic insurance industry, he said. Congress, he said, never intended to give preferential treatment to overseas writers.
"The goal is a very simple thing, which is to level the playing field," Berkley said.
Neal, then-chairman of the Select Revenue Measures Subcommittee, unsuccessfully introduced similar legislation in the last Congress. The new bill is also based on a provision in the Obama administration's fiscal year 2012 budget proposal. Congress'Joint Tax Committee estimated the legislation will reduce the deficit by nearly $12 billion over 10 years, Neal said in a statement.
The bill is harsher than the previous version and would effectively end the availability of affiliate reinsurance, said Brad Kading, president and executive director of the Association of Bermuda Insurers and Reinsurers. It would also violate international trade agreements blocking action that is punitive in nature, he said.
"There is no deduction, period," Kading said. "It's intended to be draconian."
The legislation could lead to foreign reinsurers abandoning U.S. markets, the CEA, the European insurance and reinsurance federation, said in a statement. "The proposals are discriminatory, would have a negative impact on the U.S. insurance market and would violate U.S. double-tax treaties," CEA Director General Michaela Koller said.
The Risk and Insurance Management Society Inc. said the proposal would disrupt the international insurance marketplace and make commercial insurance less affordable and less available in the United States. "By disallowing the tax deduction for reinsurance premiums ceded by U.S. insurers to offshore affiliates, the legislation will inevitably dismantle a legitimate practice in risk management which facilitates the shifting and pooling of a variety of risks from a domestic insurer to an affiliate reinsurer," John Phelps, director of business risk solutions for Blue Cross and Blue Shield of Florida and a representative of RIMS' external affairs committee, said in a statement.
North Carolina Insurance Commissioner Wayne Goodwin also issued a warning in a statement from the Coalition for Competitive Insurance Rates, a group of companies and associations representing the foreign reinsurance sector. "On the heels of Hurricane Irene's devastation in my state, anything which has the impact of driving up insurance rates and reducing reinsurance capacity for hurricane-prone states is unacceptable," he said.
The new Neal bill came on the heels of a proposal by Del. Eleanor Holmes Norton, D-D.C. to make the nation's capital a tax haven of its own. Her plan would designate the capital as a special jurisdiction where reserves and related investments from insurers and reinsurers could be set aside free of federal taxes.