Insurance News

Group calls for crackdown on offshore reinsurers

Posted on: June 23, 2009

WASHINGTON—A coalition of 14 U.S.-based property/casualty insurers is calling for legislation that prohibits domestic insurers with foreign parents from reinsuring their U.S.-written business with foreign affiliates in low- or no-tax jurisdictions.

The Coalition for a Domestic Insurance Industry sent a report and cover letter supporting its position to chairmen and ranking members of the Senate Finance Committee, House Ways and Means Committee and Select Revenue Measures Subcommittee on Tuesday.

Rep. Richard Neal, D-Mass., chairman of the Select Revenue Measures Subcommittee, last year introduced H.R. 6969, which would have capped the deductibility of reinsurance premiums paid by U.S. insurers to their foreign affiliates. The bill was not acted upon but is expected to be reintroduced this session, said a coalition spokesman.

In addition, in December the Senate Finance Committee staff released a similarly worded discussion draft. That also is expected to be proposed as legislation, the spokesman said.

In the 24-page report, the coalition said that permitting the placement of reinsurance in low-tax jurisdictions “provides foreign groups a significant and unfair tax advantage over domestic groups in attracting capital for writing insurance to cover U.S.-based risks. The legislation is necessary to preserve U.S. tax on profits from U.S. business activity and to treat all insurance of U.S. risks comparably.”

The report also said, “The unfair competitive tax advantage for foreign-based insurers already has caused a significant portion of the capital base of the P&C industry to move offshore, resulting in significant erosion of U.S. tax revenues. This trend is alarming and must be addressed.”

William R. Berkley, chairman of Greenwich, Conn.-based W.R. Berkley Corp., whose firm is a member of the coalition, said in a statement, “Foreign insurers have mounted an aggressive campaign to preserve this loophole and their unfair competitive advantage.

“Opponents have created a smokescreen of misinformation and scare tactics that grossly overstate the impact of the legislation on the U.S. insurance market. The report issued today completely rebuts the opposition’s manufactured arguments.”The report and letter are available online at http://www.CoalitionforDomesticInsurance.com.

Copyright © 2009 Crain Communications, Inc.

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