NU Online News Service, July 12, 3:55 p.m. EDT

A Congressional subcommittee will hold a hearing Wednesday on whether Congress should tighten rules dealing with the tax deduction taken by insurers who cede premiums to overseas affiliates, including reinsurers.

Sam Leaman, an analyst at Washington Analysis, which advises institutional investors on legislative issues, acknowledged that the hearing is a necessary prelude to tightening rules on premiums ceded to overseas affiliates.

Domestic property and casualty insurers have lobbied Congress on the issue for more than a decade.

The hearing will be held by the Select Revenue Measures Subcommittee of the House Ways and Means Committee.

The panel is chaired by Rep. Richard Neal, D-Mass., who has advocated for several years that the rules should be tightened on the ceding of premiums.

Rep. Neal has introduced legislation in the House, H.R. 3424, that would tighten the rules considerably.

And the Obama administration has also proposed in its 2011 budget that the rules be tightened, although the Joint Committee on Taxation "scores" the Neal bill as raising $17 billion in new revenue over 10 years, while projecting that the Obama administration's plan would raise only $2.5 billion in revenue over that period.

Those testifying will include Stephen E. Shay, deputy assistant secretary of the Treasury for international tax affairs; William Berkley, chairman and CEO of the W. R. Berkley Corporation; John Degnan, vice chairman and chief operating officer, the Chubb Corporation; and Sean Shaw, insurance consumer advocate at the Florida Department of Financial Services.

Mr. Berkley and Mr. Degan are supporters of the tax, which Berkley and Chubb have long contended place domestic insurers and reinsurers at a disadvantage when competing with overseas insurers, especially those based in tax havens like Bermuda.

Florida officials are strong opponents of such restrictions, alleging that they will add costs and reduce the capacity the state has to reinsure catastrophe risks.

At the same time, the Coalition for Competitive Insurance Rates, primarily composed of offshore insurers and reinsurers, released an updated study by economic researchers based in Boston.

The study by the Brattle Group projects that the Neal bill would cost consumers an additional $11 to $13 billion per year to maintain their current insurance coverage.

The study also claims that enactment of the Neal bill would significantly weaken competition and reduce reinsurance capacity in the U.S. by 20 percent, while reducing supply and increasing prices disproportionately on those states most vulnerable to catastrophic losses, such as California, Florida, New York and Texas.

For Florida alone, the study said, the Neal bill would increase home insurance costs for Florida consumers by $266 million, up from the 2009 Brattle Group analysis showing a $66 million cost increase for Florida's consumers.

The updated study also projected that if enacted, the Neal bill would raise home insurance costs in Texas by $112 million and by $28 million in Louisiana.

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