RIMS reiterated its opposition to legislative efforts disallowing the tax deduction for reinsurance premiums paid to foreign affiliates by domestic insurers. The legislation, H.R. 3424, was reintroduced by Rep. Richard Neal, D-Mass., a senior member of the U.S. House of Representatives Committee on Ways and Means and chair of the House Subcommittee on Select Revenue Measures.
"H.R. 3424 would limit the tax deduction to the industry index for each line of property and casualty insurance and, in doing so, would have a chilling effect on these entities and their willingness to serve as a safety valve in many areas of the country," says Deborah M. Luthi, ARM, CCSA, member of RIMS board of directors and director of enterprise risk management services at Matheson. "This bill would severely inhibit domestics with foreign affiliates from engaging in a legitimate risk management practice. The result is a disruption to the market, reduction in the supply of insurance in the United States and an increased cost to the commercial insurance consumer by $10-12 billion per year for the same amount of insurance."
RIMS is very concerned that this legislation goes against the recent Brattle Group report, "The Impact on the U.S. Insurance Market of a Tax on Offshore Affiliate Reinsurance: An Economic Analysis," which found that the bill could eliminate the practice of domestic insurers ceding to their offshore affiliate reinsurers.
Current tax code law permits insurers to deduct reinsurance premiums paid to affiliate foreign reinsurers with no penalty or cap. Over the years, non-U.S. reinsurers have served as an important backstop, ensuring the availability of insurance, particularly in areas prone to natural disasters. RIMS opposed similar legislation in 2001, 2007 and 2008. For more information on RIMS legislative activities, visit www.RIMS.org/LegislativeAction.