A controversy is raging over legislation under consideration by
Congress that would radically alter taxation of foreign reinsurers
in the US by closing a loophole that enables them to strip income
from writing US business into tax havens. Contrasting with this,
domestic reinsurers are taxed in the US on income derived from
their US business.
Vehemently opposing change is the Coalition for Competitive
Insurance Rates (CCIR), a group that includes the US-based Risk and
Insurance Management Society (RIMS), the Association of Bermuda
Insurers and the Organisation for International Investment, a body
representing US subsidiaries of companies headquartered
abroad.
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Reinforcing the CCIR’s opposition to change consultancy The Brattle
Group found in a study undertaken for the group that legislation to
increase tax on non-US reinsurers would reduce the supply of
reinsurance by up to 20 percent and add between $10 billion and $12
billion annually to US insurers’ costs.
Facing up to the CCIR is the Coalition For A Domestic Insurance
Industry, a group comprising 14 US insurers and reinsurers
including American Financial Group, Berkshire Hathaway, The
Hartford Financial Services Group, The Chubb Corporation and The
Travelers Companies.
In total the CCIR’s members have assets of over $1 trillion.
The crux of the CCIR’s argument is that legislation is essential to
eliminate the unfair tax advantage enjoyed by foreign
reinsurers.
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By GlobalDataPhrasing their stance in a somewhat protectionist manner, the CCIR
stresses that the current situation “forces the American taxpayer
to subsidise tax haven insurers operating in the US market at the
expense of US-owned insurers and their workers.”
The CCIR has also taken issue with what it terms “erroneous
conclusions” reached by The Brattle Group.
Specifically the CCIR rejects the consultancy’s conclusion that the
proposed legislation would be punitive to foreign reinsurers and
would adversely affect the US insurance marketplace.
The CCIR argues that the legislation does not penalise any market
participant.
“There is nothing punitive or unfair about the uniform treatment of
all insurers writing business in the United States,” stressed the
CCIR.
On the issue of adversely impacting the US insurance marketplace,
the CCIR noted: “Historically, the tax advantage has not resulted
in lower prices or any other benefits to consumers.”
Clearly a major lobbying battle is getting underway, the outcome of
which will be of crucial importance to the reinsurance
industry.
