NU Online News Service, July 26, 3:40 p.m. EDT

Disallowing the tax deduction for reinsurance between affiliated entities would have a "detrimental effect on U.S. consumer" and lead to higher insurance premiums, the head of a trade group representing European insurers said.

In a letter to House members, Tommy Persson, president of the CEA, a European insurance and reinsurance federation, made the comments in response to proposals in Washington designed to restrict the ceding of premiums offshore affiliates.

One proposal by the Obama administration is projected by the Joint Tax Committee to raise $2.3 billion in additional revenues over 10 years.

Another proposal, by Rep. Richard Neal, D-Mass., is projected to raise $17 billion over 10 years. The Neal legislation is H.R. 3424.

Mr. Persson said the proposals would lead to higher costs placed on foreign and foreign-controlled insurers and reinsurers doing business in the U.S.

But John Degnan, vice chairman and chief operating officer of the Chubb Corporation, disagreed. "Frankly, it's a bogeyman that [foreign insurers and reinsurers] created that they could pass this along in premiums," he said when answering a question from an analyst during Chubb's earnings conference call July 22.

In his letter to House members, CEA's Mr. Persson said another downside to the tax proposal, especially the Neal bill, is that making the placement of reinsurance with affiliates more costly would also reduce the ability of insurers and reinsurers to diversify their risks and would thus reduce insurance capacity, in particular for low-frequency, high-exposure catastrophe risks.

Mr. Degnan disputed that point as well in the Chubb conference call.

First, he said, "I don't think that the $17 billion over ten years or roughly $2 billion a year in increased tax to the insurance companies would influence the market at all."

He added, "The reinsurers are probably not going to be able the pass that along to their primary insurers. There are alternatives in the marketplace today to reinsurance, [and] the reinsurance market is highly competitive."

After a hearing on the proposals held by the Select Revenue Measures Subcommittee of the House Ways and Means Committee, Rep. Neal said it is unlikely that his legislation will advance quickly.

Besides the routine concern about any tax-raising measure, he said there is bipartisan opposition from Gulf Coast members that would also stand as an impediment to action.

He also said the only possibility that could push the Obama administration budget proposal into play would be the need to offset a proposal that would add to the federal deficit.

"It remains to be seen if either proposal could be in play as part of a comprehensive tax package before the end of the year," Mr. Neal said.

Special Reports /

European Trade Group President, Chubb Exec Spar On Foreign Tax

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