RIMS Backs Study Knocking Tax Hike For Offshore Reinsurers

NU Online News Service, May 1, 3:48 p.m. EDT

A research firm's finding that a tax increase for offshore reinsurers would be expensive for customers and limit availability of the coverage has the support of the Risk and Insurance Management Society, the group said.

The study by the Cambridge, Mass.-based Brattle Group was sponsored by the Coalition for Competitive Insurance Rates, an alliance of consumers, insurers and reinsurers that includes RIMS.

Titled "The Impact on the U.S. Insurance Market of a Tax on Offshore Affiliate Reinsurance: An Economic Analysis," the report found that legislation to increase tax on non-U.S. reinsurers would reduce the supply of reinsurance by 20 percent, cost insurance consumers more than $10 billion per year and be particularly onerous for disaster-prone states.

"The report is a clarion call to members of Congress and the administration who might support such legislation under the guise of protecting American insurers," said Deborah M. Luthi, member of the RIMS board of directors and director of enterprise risk management services at Matheson.

"RIMS believes this report provides well-documented evidence of the detrimental impact to the global insurance market, domestic property and casualty insurance market, insurance consumers, and several states that may be prone to one or more natural disasters," she said in a statement.

Current law allows domestic insurers to cede reinsurance to their foreign affiliates with no penalty or cap. A discussion draft of legislation to cap the deductibility of reinsurance premiums paid by U.S. insurers to their foreign affiliates was circulated for comment by U.S. Senate Finance Committee Chairman Max Baucus, D-Mont., earlier this year. RIMS said it opposes the measure as well as a similar measure proposed in Congress last year.

The Brattle Group report was written by J. David Cummins, professor of risk management, insurance and financial institutions at Temple University's Fox School of Business and professor emeritus of insurance and risk management at the University of Pennsylvania's Wharton School of Business, with Michael Cragg and Bin Zhou, principals and senior consultants at the Brattle Group.