NU Online News Service, May 27, 11:06 a.m. EDT

NEW YORK–William Berkley, who heads a group of U.S. insurers working to close what they see as a tax loophole for foreign insurers, suggested that critics are launching empty threats to thwart his coalition’s efforts.

Speaking at a press luncheon in New York City yesterday, Mr. Berkley, the chairman of Greenwich, Conn.-based W.R. Berkley Corp., and spokesperson for The Coalition For A Domestic Insurance Industry, reacted to remarks made by an official from the European Union in a letter to the U.S. Treasury Department last week.

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“They can’t afford to walk away from half the world’s market,” Mr. Berkley said, noting that the U.S. makes up 48 percent of the global property and casualty premiums.

In the letter to Treasury, Angelos Pangratis, acting head of the European Union, had warned that higher premiums or even “the withdrawal of non-U.S. operators from the U.S. reinsurance business” could be the end result of a tax scheme being championed by the U.S. insurer coalition.

Specifically, the U.S. coalition supports a proposal to deny U.S. tax deductions for reinsurance premiums paid to offshore affiliates. The deductions to be denied would relate only to premiums paid in excess of the industry average ceded to unaffiliated third parties for each insurance line of business.

“We think there’s a reasonable chance that it will see the light of day” and be pushed through Congress this year, Mr. Berkley said during the press luncheon.

Focusing some remarks on Bermuda rather than European reinsurers, Mr. Berkley reviewed the history of a tax change in 1986, and the launch of “an avalanche of reinsurers” in Bermuda after Hurricane Andrew. He noted that these companies expanded into writing insurance business directly by setting up subsidiaries in the United States “in direct competition with U.S. companies,” and reinsured this business to their Bermuda reinsurance affiliates, “paying no [U.S.] taxes” on it.

He added that, “This has nothing to do with arms-length reinsurance” provided to unaffiliated third parties. “We buy most of our reinsurance from offshore reinsurers. It has everything to do with them setting up direct writing insurance companies” that have an unfair competitive tax advantage.

Reacting to a reporter’s observation that EU officials view the proposal as a violation of U.S. tax treaties, Mr. Berkley responded that such an interpretation shows that the officials “need to have some reading lessons in English.”

The “cornerstone of the [tax] treaties” is that you can’t tax offshore insurers in such a way that they are adversely impacted when compared to U.S. counterparts.

“They have the option of having their U.S.-based company be taxed as we are taxed.,” Mr. Berkley said. Therefore, “in no way does it put them in a position of having an adverse tax [position] versus the U.S.” companies.