NU Online News Service, May 4, 2:36 p.m.EDT

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WASHINGTON–A research firm's finding that closing a taxloophole for offshore insurers could cost U.S. insurance consumersmore than $10 billion per year has been attacked as flawed by theCoalition for a Domestic Insurance Industry.

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The study was released Friday by the Cambridge, Mass.-basedBrattle Group, and drew the support of the Risk and InsuranceManagement Society, which was part of a group that commissioned itswork.

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It was released in anticipation that legislation that wouldclose the loophole will be introduced later this month by Rep.Richard Neal, D-Mass., chairman of the powerful Select RevenueMeasures Subcommittee of the House Ways and Means Committee and along-term opponent of the loophole.

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Sen. Max Baucus, D-Mont., chairman of the Senate FinanceCommittee, issued an exposure draft of legislation that would closethe loophole last December as a way of gauging public support forclosing it. But most of the commentators who responded voicedopposition to changing current law.

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The U.S. Coalition charged that the study reached "erroneousconclusions." It was commissioned by the Coalition for CompetitiveInsurance Rates, of which RIMS is a member. It is financed by thegroup of foreign insurers that includes the ACE Group, AllianzInsurance Group and Zurich Insurance Group.

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The study analyzed the economic impact of imposing higher taxeson foreign-owned insurance and reinsurance providers, and concludesthat closing the loophole would cost consumers an additional$10-to-$12 billion per year to maintain their current insurancecoverage.

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Additionally, it argues that the legislation, if enacted, wouldsignificantly weaken competition and reinsurance capacity in theU.S.–by 20 percent, the study said.

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"Past evidence in insurance markets indicates that whenreinsurance capacity is reduced, consumers will find it difficultto obtain insurance in certain classes of business," the studyconcluded.

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The report also said closing the loophole would reduce thesupply of primary insurance in the US by 1.8-to-2.1 percent andincrease the price of primary insurance by 1.8-to-2.1 percentoverall, and by more than 16 percent in some lines of business.

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But the Coalition for a Domestic Insurance Industry–led by W.R.Berkley Corporation, Chubb Corporation and the Hartford InsuranceGroup–said conclusions that a tax change would be punitive toforeign insurers and adversely affect the U.S. insurancemarketplace "are untrue and do not reflect marketplacerealities."

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The group said the proposed Neal bill does not penalize anymarket participant and "merely seeks to level the playing field bytaxing foreign-owned groups writing direct insurance business inthe U.S. similar to the way domestic insurers are taxed."

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The said the proposed Neal bill "expressly provides an electionto be taxed identically to a U.S. company with respect to suchbusiness."

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"There is nothing punitive or unfair about the uniform treatmentof all insurers writing business in the U.S.," the domesticcoalition said in its statement.

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RIMS representing U.S. commercial insurance buyers called theBrattle Report a "clarion call to members of Congress and theadministration who might support such legislation under the guiseof protecting American insurers."

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Deborah M. Luthi, a member of the RIMS board and director ofenterprise risk management services at Matheson, added that "RIMSbelieves that this report provides well-documented evidence of thedetrimental impact to the global insurance market, domesticproperty and casualty insurance market, insurance consumers, andseveral states that may be prone to one or more naturaldisasters."

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"This study confirms the fears of the nearly 40 independentexperts, state government officials, business owners andassociations who publicly filed opposition letters to legislationpending in Congress," according to Bradley Kading, president andexecutive director of the Association of Bermuda Insurers andReinsurers (ABIR).

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"This legislation imposes an unnecessary and costly tariff oncompanies that help spread insurance risks for consumers andbusinesses in areas subject to hurricanes, earthquakes, cropfailures and other forms of natural disasters," he said.

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"When insurance is needed to cover billions of dollars inconsumer property damage–as occurred following hurricanes Katrinaand Rita–international reinsurance companies are there," headded.

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