Congress Should Swiftly Adopt Legislation To Close Current Tax Loophole Favoring Foreign-Owned Insurers Over U.S. Insurers

Main Category: Health Insurance / Medical Insurance
Article Date: 11 Dec 2008 - 6:00 PDT

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The Coalition For A Domestic Insurance Industry, a group of 14 major U.S.-based insurance groups, today commended Senate Finance Committee Chairman Max Baucus (D - MT) and his staff on the release of a staff discussion draft to close the current tax loophole that allows foreign insurance groups operating in the U.S. to avoid paying billions of dollars in U.S. taxes. This unfair tax advantage arises because foreign insurance groups are presently allowed to strip the bulk of their profits out of the U.S. by merely reinsuring risks to affiliates located in tax havens.

"The legislation is well-targeted to close the loophole because it simply levels the playing field for domestic and foreign-domiciled insurers without negatively impacting the insurance and reinsurance markets. It does not afford any special treatment or consideration to domestic insurers, but only reduces an unfair competitive tax advantage that favors foreign-controlled insurers doing business with their affiliates at the expense of the U.S. Treasury and to the detriment of fair competition with domestic insurers," observed William R. Berkley, chairman and chief executive officer of W. R. Berkley Corporation and a spokesman for the Coalition For A Domestic Insurance Industry.

The bill would apply only to certain excessive non-taxed reinsurance premiums paid to foreign affiliates for business written in the U.S. It would not affect foreign reinsurers providing third-party reinsurance to unaffiliated insurers. "Thus, the bill should have no effect on the capacity or pricing of catastrophe coverage or crop insurance," Mr. Berkley added.

Over a period of nearly 20 years, this tax advantage has put considerable competitive pressure on domestic insurance companies to relocate to -- or sell lines of business to companies already located in -- low-tax or no-tax jurisdictions. As a result, there has already been a significant migration of insurance capital abroad.

Failure to address this issue and begin leveling the playing field could further diminish the U.S. capital base and deprive the U.S. Treasury of the billions of dollars in tax revenues it currently receives from U.S. based insurers. With one of the largest U.S. insurance companies currently having to sell off a considerable portion of its insurance assets because of the economic turmoil, and certain of its senior executives moving to offshore companies, it is essential that action be taken immediately to shore up the U.S. market.

Growth in related-party reinsurance written to foreign affiliates has been dramatic. In 2007, $58.4 billion of U.S. premiums went to foreign insurance companies, with nearly 60 percent ($33.8 billion) of those premiums going to affiliated foreign reinsurance companies. Since 1996, U.S. premiums going to affiliated foreign reinsurers have increased at a compound annual growth rate of 21.4 percent.

Today, the U.S. taxpayer, facing unprecedented burdens, also subsidizes the profits of foreign-controlled insurers. U.S.-based insurance groups pay their fair share of U.S. income tax. The Coalition believes foreign competitors should do the same.

A similar bill, H.R. 6969, was introduced in the House of Representatives by Congressman Richard Neal (D-MA), a member of the House Ways and Means Committee in September. "The Coalition is encouraged by the progress toward a sensible solution to level the playing field that these bills represent. We urge Congress to move swiftly towards adoption," Mr. Berkley concluded.

Coalition For A Domestic Insurance Industry

In addition to W. R. Berkley Corporation of Greenwich, CT, the Coalition For A Domestic Insurance Industry includes: AMBAC Financial Group, Inc., New York, NY; American Financial Group, Inc., Cincinnati, OH; Berkshire Hathaway, Omaha, NE; The Chubb Corporation, Warren, NJ; EMC Insurance Companies, Des Moines, IA; The Hartford Financial Services Group, Inc., Hartford, CT; Liberty Mutual, Boston, MA; Markel Insurance Company, Glen Allen, VA; MBIA Insurance Corporation, Armonk, NY; Safeco Corporation, Seattle, WA; Scottsdale Insurance Company (a Nationwide subsidiary), Scottsdale, AZ; The Travelers Companies, Inc., St. Paul, MN; and Zenith Insurance Company, Woodland Hills, CA. As a group, the Coalition has over 150,000 employees, and total assets in excess of $1 trillion with offices and employees located throughout the U.S.

Coalition For A Domestic Insurance Industry

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