Obama Would Tax Insurers At The $50 Billion Asset Level

NU Online News Service, Jan.14, 3:40 p.m. EST

WASHINGTON–Insurance companies with finance arms and $50 billion in assets would be subject to a federal tax on liabilities under a proposal unveiled today by the Obama administration.

The tax would involve 0.15 percent on what is called "excess liabilities," according to White House officials and officials of the Senate Finance Committee.

Insurance policy reserves would be untaxed because they are already subject to federal fees, according to administration officials.

Paul Newsome, a managing director for insurance at Sandler O'Neill Research in Chicago, said he believes all insurers that meet the criteria established under the program would be involved, whether or not they received Troubled Asset Relief Program bailout aid.

A major point, he said, is how the term "policy reserves" is defined under the law. "The key is what type of 'reserves' would be excluded from the tax."

If only certain types of reserves are excluded, the number of insurance companies that would be subject to the tax would be large, he said. If the term "reserves" is defined broadly, then only a limited number of insurers would be involved, said Mr. Newsome.

Officials of both House and Senate financial services committee immediately voiced support for the proposal.

Barney Frank, D-Mass., chairman of the House Financial Services Committee, said, "President Obama's action today complies fully with the taxpayer protection language of the original TARP bill."

"I strongly support this proposal, and I am confident that the Committee on Ways and Means will be acting on it soon," he said.

Sen. Chris Dodd, D-Conn., chairman of the Senate Banking Committee, also voiced support.

"The president has it right," said Sen. Dodd. "Wall Street owes a great debt to the American public and we have the right and the obligation to recoup as much money as we can for the taxpayers." He cautioned, "We may also consider additional means to limit executive compensation as part of our financial reform efforts."

But, Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, was more cautious. His committee would have jurisdiction over the issue.

Blain Rethmeier, a spokesman for the American Insurance Association, said, "Until we see the final details, it's unclear how this tax will impact the property-casualty industry."

"Imposing a tax like this sets a bad precedent, and once you go down this road, you don't know where it will stop," he said.

Steve Bartlett, president and CEO of the Financial Services Roundtable representing 100 of the largest integrated financial services companies, called the tax "a premature effort" to recover TARP funds. He noted that two-thirds of the TARP effort from banks has already been repaid, and the industry still has four years to repay.

"This proposed tax will do nothing more than stifle economic recovery and encumber more pressing concerns, such as covering new regulatory costs," he said.

While banks have repaid their TARP funds, several insurance companies still owe money provided them through the TARP program.

Besides American International Group, other insurance recipients of TARP aid include Hartford Insurance Group and Lincoln Financial Group.

Since several p&c insurers have financial arms, including Allstate, property and casualty companies would likely be subject to the tax.

AIG is the largest recipient of federal funds. According to AIG officials, the U.S. government has received $41.6 billion in AIG preferred stock through the TARP program. The Treasury has also provided an equity capital commitment facility of up to $29.835 billion of capital. As of October 2, 2009, AIG had drawn down $3.2 billion of that, AIG officials said.

The total authorized assistance for AIG, according to AIG officials, is $182.3 billion. AIG has received total assistance under all government aid programs of $120.7 billion, and the total outstanding debt and equity balance requiring repayment from AIG is $83.6 billion, company officials said.

Hartford Insurance Group has received $3.4 billion in TARP aid; Lincoln National $900 million.