U.S. Insurers Face Uphill Battle to Alter Foreign Insurers’ Tax Break

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A coalition of U.S. insurers is calling on lawmakers to close a tax loophole that helps foreign insurers, and although it has won the support of presidential hopeful Hillary Clinton, it faces a harder task convincing others.

The coalition, led by William Berkley, chairman of a U.S. insurance company that bears his name, says foreign insurers are cutting their U.S. tax bills through reinsurance deals with affiliates in countries with lower tax rates. Berkley said the tax on such agreements must be raised to level the playing field, or else U.S. insurers may leave the country.

Despite quietly lobbying Capitol Hill over the past year, the coalition has not succeeded in getting a bill introduced by Congress. It recently ramped up efforts, including a $1 million donation by bond insurer MBIA Inc., a coalition member. But those who closely track tax developments say the group faces an uphill battle to win wider support.

Two similar measures over the past 20 years have failed to get a nod from lawmakers, who fear essentially raising taxes on foreign insurers would ignite a trade war with powerful European insurers and encourage some overseas insurers to stop writing policies in the United States.

And insurers in the U.S. are posting strong profits, which makes it difficult for lawmakers to be sympathetic to complaints about competitiveness, or to view threats to leave the country as credible.

For U.S. insurers to move their headquarters to another country could leave them with a large capital gains tax bill, according to a recent Fitch report.

But Berkley, Chairman of W.R. Berkley Corp., said the potential for U.S. insurers to leave is real.

While the coalition largely has Bermuda insurers in its sights, Berkley said it is a global issue.

Bermuda, a mid-Atlantic British territory with no corporate income tax, has over the past few decades built itself into the world’s fourth-largest insurance market after Germany, the United States and Switzerland.

“If there was a way to just go after Bermuda they (the coalition) might have a chance of success; but it goes beyond that, and once you start changing the rules on insurance for the rest of the world, you are in a trade war,” said a person close to tax developments in Washington.

“In Ireland or Switzerland you are going to be paying 7 to 15 percent (tax), which is a heck of a lot higher than (no corporate tax) in Bermuda, but less than half the tax we pay here,” Berkley said.