RIMS Opposes Reinsurance Tax Equity Act

August 13, 2001

The Risk and Insurance Management Society Inc. (RIMS) announced its opposition to the proposed Reinsurance Tax Equity Act of 2001 (HR 1755). The decision to oppose the legislation was based on concerns that it could adversely affect the reinsurance marketplace and hamper RIMS members’ ability to successfully manage their risk exposure.

RIMS member companies, which include 84 percent of the Fortune 500 companies, are responsible for purchasing the bulk of commercial insurance coverage in America. RIMS based its opposition to HR 1755 on the following principals:

Actions limiting access to reinsurance capacity should be avoided.

Maintaining a vigorous reinsurance marketplace is essential in order to relieve market pressures on pricing and capacity, which could prove devastating for businesses.

Protectionist measures in any country should be discouraged. RIMS is opposed to any legislation that encumbers free market movement and the transfer of risk that is vital to a sound global insurance and reinsurance community. In its current form, the bill extends a protectionist arm against reinsurance companies in a limited number of nations, placement that would work to the advantage of U.S. businesses and to the disadvantage of U.S.-based companies placing reinsurance with their parent companies in foreign jurisdictions.

Premiums cover legitimate business expenses and should remain deductible for tax purposes. HR 1755 would reduce the pool of global funds that cover losses for organizations and individuals. In addition, if the taxability of premiums is eliminated, insurance rates will increase. As a result, insurance industry solvency may be impacted, hampering the ability of risk managers to correctly gauge the financial health of insurers. Stability in tax law and insurance regulation is vital to maintaining a robust and attractive market. Where tax and insurance legislation have considerable bearing on the availability of reinsurance, such regulation fails the best interest of the businesses the transactions are designed to protect.

RIMS is a not-for-profit organization dedicated to advancing the theory and practice of risk management, a professional discipline vital to the protection and preservation of physical, financial and human resources.

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