The Coalition for Competitive Insurance Rates, which groups a number of organizations that oppose to the latest attempt to amend U.S. tax laws on foreign insurers, has issued a bulletin outlining the reasons why they oppose recently introduced legislation.
They claim that the legislation – HR 6969 – introduced September 18 by US Rep. Richard Neal – will, if enacted, reduce critical US insurance capacity and drive up prices for US consumers.” The bulletin said the Bill would “affect all foreign insurers that have US subsidiaries and that also provide insurance and reinsurance coverage to the US.”
Nancy McLernon, President and CEO of the Organization for International Investment (OFII), an association of U.S. subsidiaries of companies headquartered abroad, stated: “With the current US financial market turmoil — including the US government takeover of the country’s largest insurer — this is a dangerous proposal that fundamentally limits capital available to US insurance companies and their consumers, and puts a straightjacket on continued foreign insurer assistance to the US market.
“This bill would affect workers employed at American operations of non US-based insurance companies – over 100,000 Americans work at these firms, which support an annual payroll of over $9 billion,” she added.
“Without a competitive global reinsurance market, it would be even more difficult and expensive for South Carolina and other coastal state home and business owners to obtain insurance to protect them from hurricanes,” explained South Carolina Insurance Director Scott Richardson. The bulletin also noted that “Richardson and several other insurance commissioners had written in opposition to similar proposals last fall.”
The Coalition pointed out that it had sent a letter to Sen. Max Baucus, Chair of the Senate Finance Committee, last fall, which stated: “Twice before, US policyholder groups have urged opposition to such proposals because of their effect on the availability and affordability of insurance. We say it again now – these proposals are protectionist measures aimed at benefiting some competitors in the market at the expense of others. Ultimately, the US consumers will suffer if this proposal is approved.”
The signers of that letter “included major US business and consumer organizations including the Risk and Insurance Management Society, the Florida Consumer Action Network, the National Risk Retention Association, the Organization for International Investment, the CEA -the European Insurance and Reinsurance Federation and the Association of Bermuda Insurers and Reinsurers,” said the bulletin.
“This bill is an isolationist effort by a handful of very large, very profitable US insurance corporations who intend to create a new barrier for their competitors so that they will benefit from a protected market. This proposal could not come at a worse time for the US economy. Higher prices for consumers are the likely outcome,” noted Bradley L. Kading, President of Association of Bermuda Insurers and Reinsurers (ABIR).
The Association has been in the forefront of efforts by Bermuda-based companies to explain their position to U.S. legislators, who have, as the bulletin notes, periodically tried to close what they contend is a “tax loophole,” that allows offshore insurers to pay less tax than their U.S. counterparts (See IJ web site – https://www.insurancejournal.com/news/international/2008/09/15/93680.htm).
Their basic contention is that the “U S. insurance market is dependent on domestic and foreign participants which collectively have enough capital to meet the US insurance market’s aggregate capacity needs. US consumers benefit from this global market which assures more affordable and available insurance coverage than otherwise would be the case.”
Bermuda companies are heavily involved in reinsurance, professional liability coverage, as well as natural catastrophe coverage for hurricanes and other natural disasters. Kading noted: “Hurricane Ike last week has triggered a $1.5 billion reinsurance payout to the Texas Windstorm Insurance Association, $1 billion of that will be paid by Bermuda reinsurers – instead of by Texas taxpayers. Bermuda and European reinsurers write the overwhelming majority of reinsurance that protects US consumers from hurricanes and earthquakes.”
He added: “In the last seven years, Bermuda’s insurers and reinsurers have paid more than $25 billion to US consumers from catastrophic loss claims alone. That amount may reach $30 billion by the end of the US hurricane season. The proposed legislation will either discourage these reinsurers from committing capacity to the US market or increase prices for US consumers.”
The bulletin concluded that “no tax legislation is needed as US subsidiary corporations are already subject to the US income tax and the IRS already has significant enforcement powers to review affiliated reinsurance transactions.”
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