CICA Seeks To Beat Tax Bill
The Captive Insurance Companies Association is trying to drum up opposition among risk managers to a proposed federal bill, H.R. 1755, which would increase taxes on U.S. subsidiaries of some foreign-based insurers that reinsure some risks with their parent companies.
Introduced by Reps. Nancy Johnson, R-Conn., and Richard Neal, D-Mass., the bill would require U.S. subsidiaries not subject to U.S. tax to defer the deduction for premiums paid for reinsurance until the time of a loss recovery. Chubb and The Hartford have supported this and similar bills in the past. (See NU, May 14, page 1.)
"We have been in communication with all of our members urging them to contact their own U.S. Representatives and Senators in opposition to this legislation," said Carl Modecki, president of CICA and principal of Carl A. Modecki Consulting Services in McLean, Va.
"Wed like them to indicate to the president and executive director of RIMS," the Risk and Insurance Management Society, "that we are strongly opposed to the legislation and request their immediate action to do likewise. At the moment its one segment of the reinsurance industry against another segment of the reinsurance industry."
Those most affected and most able to help are commercial consumers, who in this case are risk managers, he said. "It will hit the captives the hardest and most immediately," he added. "RIMS has the capability through their chapters to have an impact and we hope they will take that responsibility seriously."
Michael Phillipus, vice president of external affairs with New York-based RIMS, said, "Were having our External Affairs team review the bill, similar to what we did last year with the other bill. That was different than the bill this year, so it does require additional review on our part."
Once the review is complete, Mr. Phillipus said the RIMS Executive Council will take a position on the issue some time in June.
"As far as we can tell, we dont see that theres any hearing scheduled, and no comparable Senate bill, so its not something thats coming up on the radar screen of the Congress that fast, so we think the review is appropriate" Mr. Phillipus added.
The Coalition of Alternative Risk Funding Mechanisms plans to release a statement on the legislation in early June, according to Jon Harkavy, a board member of CARFM, representing the National Risk Retention Association.
CARFM's membership includes CICA, RIMS and NRRA, as well as state captive associations for Colorado, Hawaii, Illinois and Vermont.
"CARFM is an association of associations, so each association has to discuss the issue first," said Mr. Harkavy, who is vice president and general counsel of Risk Services, LLC in Washington, D.C.
Mr. Harkavy said his personal view of H.R. 1755 is that "its horrible legislation. I think its protectionist, and its an attempt by the U.S. government to force Bermuda and a few of the offshore companies to raise their rates."
Some U.S.-based insurers are backing this bill, he said, "to impose added tax obligations on the ACEs, the XLs, the Everests and [other offshore carriers] to force them to raise their premiums. It gives [U.S. insurers] cover so they can raise their own rates, and this is in the middle of an otherwise hardening market."
From a consumer point of view, Mr. Harkavy said those who ultimately will pay are large commercial insureds. Even though this bill is the third in a series of harsh insurance proposals that have had few supporters and did not become law, he said, "youre always concerned about it going through."
"If it has its intended effect, its going to raise rates above and beyond the hardening market," Mr. Harkavy said. "Unfortunately Im reminded of an old cartoon by Pogo that said, We have met the enemy and the enemy is us."
Robert Marzocchi, tax director for Chubb in Warren, N.J., said H.B. 1755 is not directed at captives and shouldnt affect them.
"I think the IRS has tried for the last 21 years and probably a lot longer to close down captives," he said. "This issue will not change that. I think captives will continue to work to the extent that they do. For the most part captives serve a useful purpose and the IRS has learned to live with them. Chubb and every other insurer works with captives."
The issue being addressed with the proposed legislation, he said, is "the tax loophole that exists today where companies–direct writers and companies that represent reinsurance capacities–are doing business here and avoiding paying taxes on that business through this loophole of reinsuring with an offshore parent or affiliate."
As a result, he said, "weve seen U.S. corporations invert from U.S. holding companies to foreign holding companies. I think its crazy for the U.S. to have a tax system that encourages corporations to leave the country to avoid the tax system."
Mr. Marzocchi said H.R. 1755 is not an excuse to raise rates, which are set by the market. He said the ultimate loser is "the American taxpayer, and its particularly hurting the insurance industry as taxpayers."
"Were paying a greater share of taxes than other companies that compete with us," he added. "We all pay for it when someone doesnt pay their fair share of the tax."
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, May 28, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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