Insurers Slam US Tax Proposals

by Mike Godfrey, Tax-News.com, Washington

09 June 2010

A coalition of insurance companies has written a letter to members of the US Congress warning them of the dangers of "punitive" insurance tax legislation currently pending in the legislature.

The letter, sent by the Coalition for Competitive Insurance Rates to the chairmen and ranking members of the House Committee on Ways and Means and the Senate Committee on Finance, expressed concern over a bill introduced by Rep. Richard Neal (D - Massachusetts), in addition to a similar proposal within the Obama administration’s 2011 budget.

The Neal bill (HR 3424) would amend the Internal Revenue Code to “disallow the deduction for excess non-taxed reinsurance premiums with respect to United States risks paid to affiliates.”

According to Neal, since 1996, the amount of reinsurance sent to offshore affiliates has grown from a total of USD4bn ceded in 1996 to USD33bn in 2008, including nearly USD21bn to affiliates in Bermuda, where corporate tax is 0%, and over USD7bn to Swiss affiliates. “Use of this affiliate reinsurance provides foreign insurance groups a significant market advantage over US companies in writing direct insurance here in the US,” he said.

However, the insurance industry, including the Risk and Insurance Management Society (RIMS), argues that the proposals, if enacted, would "restrict market access to insurance capacity" and allow a handful of large companies to force up insurance premiums.

“RIMS has always opposed proposals to restrict market access to insurance capacity," said RIMS board liaison Scott Clark. "HR 3424 is a great threat to insurance capacity in the US. Over the past decade it has been proposed several times, not surprisingly by a handful of US insurers which seek to gain via a protected market that would allow them to charge higher prices."

“Nothing could be worse for US consumers. Efforts by US insurers to punish foreign competitors do nothing but harm US consumers and these proposals should be rejected," Clark added.

The Organization for International Investment, a business association representing the US subsidiaries of companies headquartered abroad, is of the view that the bill would violate America's trade treaties and commitments to the World Trade Organization.

"The recent letter sent to Secretary Tim Geithner from the European Union made it clear that this proposal has strong opposition from some of our closest allies," said Nancy McLernon, President and CEO of the Organization for International Investment.

"This proposal solely targets non-US companies and is therefore discriminatory in nature and creates an anti-competitive environment for companies who wish to invest in the US insurance market," she added.

The Neal bill was referred to the House Committee on Ways and Means on July 30 last year. Neal, who chairs the Ways and Means Select Revenue Measures subcommittee, introduced the same bill in the previous Congress in September 2008, but the legislation did not progress beyond the committee stage.

Recommended