RIMS Opposes 'Bermuda Loophole' Bill

by Mike Godfrey, Tax-News.com, Washington

13 August 2001

A prominent insurance industry body, Risk and Insurance Management Society, Inc., anounced its opposition to the H.R. 1755 bill, commonly known as the 'Bermuda Loophole' bill, in a position statement issued last week. The bill, which occupied the headlines for much of 2000, stems from a group of US insurers who lobbied Congress to plug a tax loophole which they said was allowing Bermuda based reinsurers to dodge income tax in the States.

The onshore insurers claimed that the offshore companies had an unfair advantage, because they could reinsure long-tail insurance business from the US to a low tax company abroad in order to benefit from the lower taxes on interest income in their home countries. However, the offshore contingent hit back angrily, pointing out that the US has a lower tax rate than many other countries but did not consider this an unfair advantage, and that many of the offshore companies under attack do business in many different countries and pay tax on this income.

Now the saga continues, as the US-based RIMS has come out against the fledgling bill, claiming that the legislation would adversely affect the reinsurance market and hamper its members ability to successfully manage their risk exposure. 'RIMS members have an inherent interest in maintaining a competitive and innovative global insurance and reinsurance market,' explained RIMS vice president of external affairs, Michael Phillipus. 'We believe H.R. 1755 would undermine and disrupt this market,'

RIMS member companies include 84% of the Fortune 500 companies, and are responsible for purchasing the majority of commercial insurance coverage in America. The group announced that it had based its opposition to the bill on the principals that actions limiting access to reinsurance capacity should be avoided, protectionist measures in any country should be discouraged, and that premiums cover legitimate business expenses, and should remain deductible for tax purposes. RIMS also argued that stability in tax law and insurance regulation is important to maintain a robust and attractive market, and that where such legislation has a considerable bearing on the availability of reinsurance, it fails to look after the best interests of the businesses that the transactions are designed to protect.

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