NU Online News Service, July 13, 3:50 p.m.EDT

Authors of a recent study that opposed a proposed tax on offshore reinsurers "don't have their mathright," according to William R. Berkley, chairman and CEO of theW.R. Berkley Co.

In comments to the NU Online News Service, Mr. Berkley said itis difficult to understand how raising taxes by an estimated $1.9billion by closing a loophole–as projected by the Joint TaxCommittee–would cost consumers an additional $11 to $13 billion peryear to maintain their current insurance coverage.

The study, released July 12 by the Brattle Group, found thattightening rules dealing with the tax deduction taken by insurerswho cede premiums to overseas affiliates, including reinsurers,would create annual increases of $11 to $13 billion.

The $1.9 billion in taxes is projected to be the revenues raisedannually by enacting H.R. 3424, legislation introduced by Rep. Richard Neal,D-Mass.

The bill, and the issues raised by the proposed change in taxrules, will be the subject of a Wednesday hearing before the SelectRevenue Measures Subcommittee of the House Ways and MeansCommittee.

The Brattle Group study claims that enactment of the Neal billwould "significantly weaken competition and reduce reinsurancecapacity in the U.S, by 20 percent, while reducing supply andincrease prices disproportionately on those states most vulnerableto catastrophic losses, such as California, Florida, New York andTexas."

But Mr. Berkley, who will testify Wednesday, argued that theprojected costs as calculated by the Brattle Group analysts weregenerated by adding up a "series of disconnected facts," and, infact, "are nonsensical."

Mr. Berkley also disagreed with the study's conclusion that the"proposed tax would all but eliminate offshore affiliatereinsurance."

The study says the proposed Neal bill would define a benchmarkabove which offshore affiliate reinsurance is "excess" and is thussubject to the tax.

The study contends the benchmark as proposed by the Neal bill"is both illogical and perverse, penalizing U.S. subsidiaries fortheir use of non-affiliate (as well as affiliate) reinsurance."

The Brattle Group analysts project that 87 percent of offshoreaffiliate reinsurance, $26.0 billion of $29.8 billion, would beclassified as "excess."

Mr. Berkley said the study's conclusions "show a lack ofunderstanding as to how reinsurance works in the U.S."

He said the Neal bill has a "very narrow focus" that wouldcreate a level playing field for both domestic and offshoreinsurers and reinsurers.

He said offshore insurers can eliminate the impact of the tax by"electing to have their U.S. domestic affiliate taxed as a U.S.company."

Mr. Berkley said he doesn't blame offshore insurers for cedingpremiums from their U.S. units to offshore affiliates.

The key difference is that the U.S. taxes investment income; noother country does that in the same manner, Mr. Berkley said.

"They should seek to maximize their profits," Mr. Berkley said.But, as "American companies, we don't [believe] that should be donein a way that penalizes domestic insurers"

Both Rep. Neal and the Obama administration have offeredproposals to tighten the rules.

The Obama administration proposal would allow a foreign insurerto move half its premiums offshore without taxation.

The Neal bill would raise more revenue because it would basetaxes on a benchmark by line of business, Mr. Berkley said.