FPCA Action Alert: ABIR Seeks Opposition To Federal Reinsurance Tax Bill
Feb 25, 2009
Colodny Fass has been contacted by the President and Executive Director of the Association of Bermuda Insurers and Reinsurers (“ABIR”) regarding proposed legislation being considered by the United States Senate Finance Committee.
Namely, House Bill 6969 (proposed now by Senator Baucus as a staff discussion draft) would amend the federal tax code to disallow tax deductions for reinsurance premiums paid by U.S. insurers to their foreign affiliates that exceed the industry average for each line of property and casualty business.
ABIR predicts that the proposed legislation, if enacted, would result in a 20 percent premium tax on foreign reinsurers for any amounts of affiliated reinsurance in excess of the industry average. Moreover, ABIR has indicated that the costs of such increased premium tax would either be passed along to the foreign insurers’ U.S. affiliates and, ultimately, to U.S. policyholders and consumers. Or, if the market didn’t allow, costs would be paid for out of the reinsurer’s capital base, thus decreasing capital available to provide capacity. Since the tax would be so large that it could force a change in a company’s business model, it is unpredictable how companies will respond.
Of note to Florida domestic insurers, other potential consequences of this proposed legislation, if enacted, could be:
- A reduction in the availability of affordable reinsurance in hurricane-prone jurisdictions such as Florida, where foreign reinsurers assume much of the catastrophic risk for such jurisdictions;
- Re-allocation of capital to wholly-U.S. business, which could result in downgraded credit ratings for foreign reinsurers;
- General disruption in the capital markets affecting Florida’s insurance industry.
Attached, please find the following documents providing further information on this draft bill:
1. A copy of the Senate Finance Committee’s request for comments from interested parties
2. A copy of the RIMS press release in opposition to the Bill
3. A copy of South Carolina Insurance Director Scott Richardson’ letters from 2007; Director Richardson will update these letter and Commissioner Chaney is working on a letter. Also, an updated copy of Louisiana Insurance Commissioner Jim Donelon’s letter on this topic.
4. A chart showing which insurers paid claims from Katrina/Rita and Wilma
5. A chart showing Florida’s domestic homeowners’ insurance industry reinsurers
6. Senator Mel Martinez’s 2007 letter in opposition to this issue
7. The December 2008 version of the coalition letter in opposition. An letter is being updated and will be sent by February 27, 2009
8. A copy of the revised FCAN letter
9. A suggested letter template for use by Florida domestic insurer to express their opposition to the bill. Beth Vecchioli is also using this letter with some contacts
10. An address list of some key Members of Congress on the House Ways and Means and Senate Finance Committees
11. A Florida Consumer Action Network letter to Senator Bill Nelson
12. A U.S. Senate discussion draft on the tax treatment of reinsurance companies
We request all FPCA members to review the attached information and documents. All members who are interested in opposing this legislation should draft letters by email to Senators Baucus and Nelson and Representative Meek on or before this Friday, February 27, 2009. Interested members can use the template letter attached to this bulletin, and send one letter to Senator Baucus, the chair of the Senate Finance Committee, with copies furnished to the other policymakers on the attached address list.
We appreciate your review of this information, and your assistance in this regard.”