Insurance buyer groups have successfully struck down past efforts by U.S. commercial insurers to get Congress to remove tax advantages enjoyed by Bermuda competitors, and they'll probably do so again, a lobbyist suggested here.
"This is the third time that a faction of U.S. commercial competitors has attempted to create punitive tax treatment for non-U.S. competitors in 20 years," said Bradley Kading, president and executive director of the Association of Bermuda Insurers and Reinsurers.
He was referring to an effort led by William Berkley, chairman of W.R. Berkley Corp., who testified before the Senate Finance Committee in September on behalf of a 14-member coalition of U.S. commercial insurers, urging lawmakers to adopt legislation to remedy what they view as an unfair tax advantage for foreign insurance groups.
"Both times before [such attempts] have been rejected by policymakers [who were] really listening to business buyers," he said.
He added that the Risk and Insurance Management Society is again showing leadership in the current tax debate, responding to a question posed to him during a joint luncheon of the Association of Professional Insurance Women and the Insurance Brokers Association of the State of New York.
The coalition led by Mr. Berkley told Congress that non-U.S. insurers based in "tax havens like Bermuda or the Cayman Islands legally avoid paying billions of dollars in taxes on much of their U.S. underwriting and investment income"–a situation it said threatens the future of the U.S. insurance industry.
Mr. Kading countered that "this current attack is all about protecting one segment of the commercial insurance marketplace by creating punitive tax regimes for competitors that provide good coverages–good choices to the U.S. commercial insurance buyers."
Focusing on the heart of the argument advanced by U.S. carriers who want to see tax rules changed–the idea that Bermuda companies cede U.S. business to affiliated reinsurers in Bermuda to avoid paying income taxes–Mr. Kading said "affiliated reinsurance transactions are done by non-U.S. carriers for the same reasons they're done by U.S. carriers," insisting that it's not for tax reasons, which "are overstated."
"U.S. carriers use affiliated reinsurance [companies] for risk-transfer purposes," he said. "They [also] use them to avoid trapped capital," explaining that while there may be licensed entities in specific U.S. jurisdictions that "have historical reasons to exist," those companies "may not be places [where] you want capital to accumulate."
A third reason for using affiliated reinsurance is "to develop capital in flagship organizations," he said.
"If you have the capital in a flagship enterprise, then you have maximum flexibility to deploy that capital and take advantage of business opportunities," Mr. Kading said.
Using more simple terms, he said, "you can write more coverage with $100 million in one pot of money than $100 million split into 10 different pots."
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"This current attack is all about protecting one segment of the commercial insurance marketplace by creating punitive tax regimes for competitors that provide good…choices to…buyers."
Bradley Kading, President
Association of Bermuda Insurers and Reinsurers
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