The Risk and Insurance Management Society (RIMS) has expressed its concerns over an administration proposal to eliminate the tax deduction for reinsurance premiums ceded by domestic insurers to their foreign affiliates.
The proposal, a part of President Barack Obama's proposed 2014 budget, “should be disregarded because it creates demonstrable consumer harm and results in a severe economic imbalance,” said John Phelps, president of RIMS, in a letter to the US House of Representatives International Tax Reform Working Group.
The economic balance that Phelps describes would cause consumer prices for insurance to increase between $11 and $13 billion each year, while producing only $6.2 billion in new tax revenues over 10 years.
He said: “The impact of these price increases will fall disproportionately on states with cities subject to terrorism risks and those most exposed to large catastrophic risks.”
According to Phelps, foreign insurers with domestic subsidiaries are critical to the continued health and vitality of the US and global insurance markets.
“Throughout the recent series of natural catastrophic events, and the terrorist attack on 9/11, foreign reinsurers have filled gaps in coverage where domestic insurers either discontinued or severely curtailed coverage or significantly increased rates.”
The Coalition for Competitive Insurance Rates has also written to US members of congress, including Max Baucus, chairman of the Senate's finance committee, expressing its concerns over the budget plans.
The coalition—whose members include the Captive Insurance Companies Association and the Vermont Captive Insurance Association—described the proposed changes as "unthinkable" at a time when the administration is encouraging foreign direct investment to support the Northeast in rebuilding after Hurricane Sandy.
“[The tax] on foreign affiliate reinsurance would only serve to limit US insurance capacity and drive up the cost of insurance, a major threat to homeowners and small business, particularly those in disaster-prone states.”
