Florida Legislators, Bermuda Trade Associations Voice Tax Concerns
Dec 2, 2011
The following article was published in Property Casualty360º on December 2, 2011:
Florida Legislators, Bermuda Trade Assocs. Voice Tax Concerns
By Arthur D. Postal
Republican legislators from Florida and a trade group for Bermuda insurers are renewing their concerns about the potential high cost of raising taxes on offshore insurers as a means of addressing budget deficit and debt concerns.
In a letter to the leadership of the House Ways and Means Committee, nine members of the Florida congressional delegation asked the tax-writing panel to oppose the establishment of a punitive tax on reinsurance.
Brad Kading, president of the Association of Bermuda Insurers and Reinsurers, made the same point recently in an appearance in Atlanta.
“We are suffering through a global debt crisis; the wisest public policy is to maximize private-sector risk-bearing,” Kading remarked to a real estate market and property insurance conference hosted by the Atlanta Federal Reserve Bank.
The Florida legislators and Kading made their comments out of concern that provisions raising taxes on foreign insurers would be on the minds of legislators as they seek to offset tax cuts and deficit-reduction proposals now working their way through Congress.
For example, Congress is now working on legislation that would extend bills to bar implementation of the alternative minimum tax, according to industry officials.
The break expires Dec. 31. Democrats are also pushing legislation that would extend the ban. But the party appears to be making an exception for renewing and extending a tax break on payroll taxes that is also set to expire at the end of this year.
The Florida legislators said the bill, H.R. 3157, introduced by Rep. Richard Neal, D-Mass., would “lead to higher premium costs for citizens of Florida and the rest of the nation.”
The legislation is aimed at closing an alleged loophole that allows foreign-based insurers with U.S. subsidiaries to cede premiums on their U.S. risk to their offshore units, thereby reducing their taxes.
The Obama administration has also proposed legislation aimed at closing the loophole, but the revenue gained from the Obama administration proposal would be far less than the Neal bill.
The Neal bill would impose a tariff on international reinsurance firms, reversing current policies that allow insurance companies based in the United States to claim a deduction on their corporate tax return for the amount of reinsurance premiums paid to a foreign affiliate.
Signing the letter were Reps. Dennis Ross, David Rivera, Bill Posey, Sandy Adams, Jeff Miller, Mario Diaz-Balart, Gus Bilirakis, Ander Crenshaw and Illeana Ros-Lehtinen.
The letter was written to Reps. Dave Camp, R-Mich., and Sander Levin, D-Mich., the chairman and ranking minority member of the House Ways and Means Committee. The Republican members of the Florida delegation said that the Neal bill’s “punitive and anti-competitive taxes” would result in “a less secure property insurance market.”
The letter also said that “this proposal will, in the long term, do nothing to foster economic growth or make the United States an attractive place to do business.”
In his comments, Kading said that despite more than $80 billion in global property catastrophe losses for 2011, the commitment of reinsurance markets to the U.S. remains stronger than ever, with ample capacity to meet the demands of U.S. insurers.
Kading also said that U.S. consumers benefit from the growth in non-U.S. catastrophe risk.
He said that because of this, “in 1992, the largest per event cover a U.S. insurer could buy from a reinsurer was $400 million.”
He said this has now grown to $3.5 billion in 2011. “Bermuda’s reinsurers provided nearly half of that capacity in 2011,” Kading said, citing statistics from a reinsurance broker.