Florida Gov. Rick Scott is taking a firm stance against proposals floated in Congress and by the White House that would raise catastrophe insurance rates by limiting the ability of foreign-based insurers and reinsurers to be able to deduct their reinsurance costs.
In a July 22 letter to U.S. Rep. Vern Buchanan, R-Fla. – Florida’s lone representative on the tax-writing House Ways and Means Committee – Scott points to analysis by the Brattle Group that the proposed tax change would raise Floridians’ insurance premiums by an aggregate $817 million, with homeowners rates rising 4.2 percent and commercial insurance rates jumping 12.6 percent.
“Global reinsurers play a significant role in Florida’s insurance marketplace by providing an estimated 90 percent of the capacity that supports our domestic insurers and a similar amount of the capacity purchased by Citizens Property Insurance Corp.,” Scott wrote.
Introduced earlier this year, S. 991, sponsored in the Senate by Sen. Robert Menendez, D-N.J., and H.R. 2054, sponsored in the House by Rep. Richard Neal, D-Mass., would both deny U.S. subsidiaries the ability to deduct the cost of reinsurance ceded to affiliates that are not subject to U.S. taxes. The change, which has been endorsed by President Barack Obama and is projected to raise $12 billion over 10 years, long has been pushed by a small group of large U.S. insurers and reinsurers.
Transfers of risk between insurance affiliates is a near-universal practice among insurance groups, both to allow for the most efficient deployment of capital, and to ensure that risks are borne and reserves are housed where they are most appropriate.
However, the bills would only change the tax deductibility of transfers that move risks out of the United States, effectively concentrating those risks here instead of dispersing them around the globe. The result is to make shrink capacity and make coverage less affordable, particularly in catastrophe-prone regions. As Scott put it:
Florida needs this global reinsurance capacity, and the reinsurance tax included in president’s proposal and the Neal-Menendez bill would damage our state’s economic recovery by increasing insurance costs for policyholders. That is why the Florida Chamber of Commerce, the Associated Industries of Florida, the Florida Insurance Council, the Florida Legislature, the Florida Consumer Action Network, the Consumer Federation of the Southeast and Insurance Commissioner Kevin McCarty have all written in opposition to the tax. I ask that you stand in opposition to the president’s budget recommendation and oppose measures that include the reinsurance tax.