WASHINGTON--Domestic and foreign insurers traded barbs--although the foreign insurers did so anonymously--at a congressional hearing today over whether the U.S. should tighten rules dealing with the ceding of premiums to offshore parent companies by U.S. affiliates.
The fireworks took place at a hearing today before the Subcommittee on Select Revenue Measures of the House Ways and Means Committee over two proposals designed to restrict the ceding of premiums offshore.
One of the provisions, proposed by the Obama administration, is projected by the Joint Tax Committee to raise $2.5 billion in additional revenues over 10 years.
Another proposal, by Rep. Richard Neal, D-Mass., chairman of the subcommittee, is projected to raise $17 billion over 10 years. The Neal legislation is H.R. 3424.
In the Senate, Sen. Robert Menendez, D-N.J., is a strong advocate for the legislation.
A lobbyist for an international insurer, who asked not to be named, said, "Today's hearing was very instructive because the battle lines are clearly defined in this debate between two powerful East Coast insurance company CEOs advocating for the Neal bill and the insurance consumer advocate for the state of Florida arguing against it.
"It's domestic insurance company CEOs vs. consumers," he contended.
But in direct testimony at the hearing, William Berkley, chairman and CEO of the W.R. Berkley Corp. and head of the domestic insurers' coalition, charged that offshore insurers are "using scare tactics" to maintain the status quo.
Mr. Berkley said that they are "attempting to confuse the real issues by claiming the legislation will adversely affect pricing and capacity for catastrophe reinsurance in the coastal states and the rest of the U.S. insurance market.
"But the facts are undeniable and the opponent's claims are simply false," he charged. "The bill will have little or no impact on the availability or cost of catastrophic coverage in coastal areas or elsewhere."
And in answering questions from several members of the committee about the impact of the legislation, John Degnan, vice chairman and chief operating officer of the Chubb Corporation, discounted claims that the Neal bill, if enacted, would dry up reinsurance capacity in the U.S. and therefore raise insurance rates to consumers.
He said that if foreign reinsurers cut their supply of reinsurance to the U.S. market, other sources of reinsurance capacity would quickly take their place.
He added that it would not be easy for insurers to raise their premiums if the restrictions proposed by the Obama administration or the tax proposed by Rep. Neal became law.
"This industry is highly regulated by the states, and it is not that easy to raise rates," he argued.
Sean Shaw, insurance commissioner advocate for the state of Florida spoke in opposition to the Neal bill, or any effort to restrict current practice.
"I'm concerned about American consumers," Mr. Shaw testified.
"Consumers can expect to pay an additional $11 billion to $13 billion every year because of this tax increase," he said, citing numbers from a recent study conducted by the Brattle Group of Boston.
But in questioning Mr. Shaw, Rep. Neal noted that the report containing the cost projections was prepared by an outside consulting firm and commissioned by the Coalition for Competitive Insurance Rates, a group formed by offshore insurers who would be affected by the legislation.
In his testimony, Mr. Berkley cited a study of the Neal bill by consulting firm LECG Corp that found that foreign insurers actually supply only a small amount of the total direct catastrophic coverage of the coastal states and other states.
He said the LECG report found that the principal writers of the Florida Homeowners Multiple Peril policies in aggregate cede only .3 percent of their direct business premium to offshore affiliates.