Angelos Pangratis, acting head of the
European Union (EU) delegation to the US, has been praised by the
Coalition for Competitive Insurance Rates (CCIR) for his stance in
opposing action to deny US tax deductions to foreign insurers on
reinsurance cessions to affiliates outside the US.
Pangratis expressed the EU’s opposition to the
proposed tax move, which forms part of President Obama’s 2010
fiscal year budget proposal, in a letter to, among others, US
Treasury Secretary Timothy Geithner.
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Pangratis wrote: “We believe the proposal is at
odds with the principle of a level playing field for all US
insurers and reinsurers, by introducing a tax regime that would
penalise foreign-owned US insurance companies that reinsure their
risks with affiliated foreign companies.”
He continued that the EU has doubts whether the
primary aim of the proposal is tax evasion.
“Instead the proposal appears to protect the US
insurance and reinsurance industry through discriminatory treatment
of foreign insurers and reinsurers,” wrote Pangratis.
This, he stressed, would contravene the
commitment of G20 leaders to fight protectionism.
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By GlobalDataIn addition, Pangratis said the proposal would
be in contravention of the US’ commitments under the World Trade
Organisation’s (WTO) General Agreement on Trade in Services (GATS).
This commitment specifies that insurers and reinsurers of any other
WTO member must be treated no less favourably than US insurers and
reinsurers.
Pangratis warned that should the US proceed
with its proposed tax change it could result in higher premiums for
US policyholders or even withdrawal of non-US operators from the US
reinsurance market.
“This is a strong message coming directly
from the European Union, and should serve as fair notice that the
international community strongly objects to this anticompetitive
proposal,” said Nancy McLernon, president and CEO of the
Organisation for International Investment (OII).
OII is an association representing US
subsidiaries of foreign companies and a member of the CCIR. Other
members of the US-based CCIR include the Risk and Insurance
Management Society and the Association of Bermuda Insurers.
Chorus of vehement
opposition
Meanwhile, the federation of European
insurers and reinsurers, the Comité Européen des Assurances (CEA),
has also joined in the chorus of vehement opposition to the
proposed US tax.
In a letter to members of the US Congress and
Senate closely involved in the proposed tax, CEA director general
Michaela Koller highlighted that almost 500 US-based
foreign-controlled insurers and foreign reinsurers provide 15% of
the direct insurance and more than half of the reinsurance accepted
in the US.
“To serve millions of US customers, European
[re]insurers have operations in many US states, collectively
employing tens of thousands of US citizens,” wrote Koller.
She continued that, in order to understand the
harm the proposed tax would cause, it is important to note that
affiliated reinsurance is used to diversify risks and represents an
essential and basic principle in the insurance business model.
“Transferring variable and uncorrelated risks
to a central place, as done via affiliated reinsurance, is
necessary to maximise diversification benefits and smooth expected
losses,” wrote Koller.
“Affiliated reinsurance thus plays an important
part in increasing insurance capacity, in particular for low
frequency, high exposure risks such as hurricane, earthquake and
terrorism.”
Koller emphasised that if foreign insurers are
not allowed to reinsure with their affiliates, the available
capacity in the US reinsurance market will decrease and reinsurance
prices will increase.
“As a result, the insurance premium prices paid
by US consumers will be substantially higher,” wrote Koller.
She added that estimations based on an previous
similar tax proposal show insurance prices could increase by as
much as 16% in some lines of business, costing consumers billions
per year.
Echoing Pangratis, Koller also placed
strong emphasis on US obligations under the GATS, stressing the CEA
believes it would constitute a breach of the US WTO commitments.
She added that the proposed tax would also lead to a violation of
US double tax treaties designed to prevent discrimination against
foreign-owned companies.
