Europe’s CEA Expresses Concerns on Reinsurance Tax Proposals

July 27, 2010

The CEA (Centre d’Etudes d’Assurance), the European insurance and reinsurance federation, has written to the US House of Representatives to express its concerns over proposals to change the US tax treatment of reinsurance between affiliated entities.

The comments center on the much debated Bill HR 3424, introduced in the US House of Representatives in July 2009 by Representative Richard Neal (D-MA). See IJ website – https://www.insurancejournal.com/news/national/2010/07/15/111603.htm; https://www.insurancejournal.com/news/national/2010/06/29/111147.htm; https://www.insurancejournal.com/comments/?a=/news/national/2010/07/15/111603.htm&c=164472 for some of the most recent discussions on the legislation.

“The CEA believes that substantial unintended and negative consequences would result from the implementation of such proposals and has written to the US House of Representatives Select Revenue Measures Subcommittee with its concerns,” stated CEA President Tommy Persson.

The organization’s position states that “disallowing the tax deduction for reinsurance between affiliated entities would have a detrimental effect on US consumers as it would lead to higher insurance premiums, due to the higher costs that would be placed on foreign and foreign-controlled (re)insurers doing business in the US.”

The contention is one of the main points made by the Washington D.C.-based Coalition for Competitive Insurance Rates [www.keepinsuranceratescompetitve.com], which opposes the bill

The CEA’s letter notes that the (re)insurers involved “supply 15 percent of the direct insurance and 50 percent of the reinsurance accepted in the US. Making the placement of reinsurance with affiliates more costly would also reduce the ability of (re)insurers to diversify their risks and would thus reduce insurance capacity, in particular for low frequency, high exposure catastrophe risks.”

Persson stated: “EU reinsurers face an average tax burden of 25 percent, so the argument that the existing tax deduction could create incentives to reinsure more than would otherwise occur between unrelated entities does not hold true. The proposals would also lead to taxation in both the US and the reinsurer’s country of origin, thereby violating US double tax treaties.”

The CEA also pointed out that “US law already includes adequate tools to deal with ‘income shifting’ from US insurance subsidiaries to foreign affiliate reinsurers. The transfer pricing rules of the US Internal Revenue Code mean that no further measures are required to prevent tax evasion.”

In addition the CEA brought up an issue that, while it’s been mentioned, hasn’t been stressed. It said that as the “proposals are only applicable to foreign, not US, reinsurers, the CEA believes they could contravene the US G-20 commitment to avoid protectionism and its World Trade Organization (WTO) commitments under the General Agreement on Trade in Services (GATS).”

“We strongly urge US legislators to recognize the detrimental effects on US consumers and the US insurance market and to abandon the proposals,” Persson concluded.

Source: CEA

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