Rep. Richard E. Neal (D- Mass.), Chairman of the Subcommittee on Select Revenue Measures, has reintroduced a bill in the U.S. House of Representatives that he says would negate a tax advantage enjoyed by foreign-based reinsurance providers.
Supporters of the legislation contend that the use of excessive affiliate reinsurance by foreign insurance groups enables them to park their U.S. income in offshore tax havens, thus gaining a competitive advantage over their American-based counterparts. To buttress this contention, Neal noted the amount of reinsurance sent to offshore affiliates has grown dramatically, from a total of $4 billion ceded in 1996 to $33 billion in 2008, including nearly $21 billion to Bermuda affiliates and over $7 billion to Swiss affiliates.
"The benefits of being headquartered in a tax haven can be quite significant for a company with investment income over long periods of time," Neal said in a floor statement. "Use of affiliate reinsurance allows foreign-based companies to shift their U.S. reserves and their investment income overseas into tax havens, thereby avoiding U.S. tax."
Neal says his bill, H.R. 6969, restores a level-playing field by treating U.S. insurers and foreign-based insurers alike. The legislation also provides Treasury the authority to carry out or prevent the avoidance of the provisions of this bill.
Opponents of the legislation contend that it is unduly punitive and will lead to higher reinsurance rates.
"We urge members of Congress to reject this legislation, as they have twice before,” said Bradley Kading, president of the Association of Bermuda Insurers and Reinsurers, a CCIR member. “Only a handful of very large, very profitable US insurance companies would benefit from this bill. In contrast, the economic data make clear that American consumers and businesses would pay a steep price if Representative Neal’s proposal becomes law."
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