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RIMS lobbies to FIO director for support of terrorism reinsurance program

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The Risk & Insurance Management Society Inc. is advocating that the federal government maintain its financial support for a terrorism risk reinsurance program and abandon support for legislation that would alter the tax treatment of foreign domiciled reinsurers.

In an official comment letter submitted to Federal Insurance Office Director Michael McRaith, RIMS stressed the importance of federal support for terrorism reinsurance capacity to the insurance industry. In 2002, the Terrorism Risk Insurance Act created a federally funded reinsurance backstop for the insurance industry. Passed in 2007, the Terrorism Risk Insurance Program Reauthorization Act reauthorized the program until 2014. A recent survey of RIMS members indicated that 85% of respondents supported the reauthorization of TRIPRA, the letter states.

“The past 10 years have demonstrated that the private sector alone is not able to sustain a competitive and healthy market for terrorism risk insurance,” the letter, signed by RIMS President Deborah M. Luthi, states. “TRIA and TRIPRA have been essential, and it is our belief that it would be highly unlikely that terrorism risk insurance would continue to be available at coverage levels and prices in effect today if the federal government support was withdrawn altogether.”

The letter also stated the organization’s opposition to legislation introduced last year by Rep. Richard Neal, D-Mass., and Sen. Robert Menendez, D-N.J., that would alter the tax code for domestic insurers that cede reinsurance to their foreign affiliates, saying the proposals would have a chilling effect on these insurers and reinsurers and ultimately cost consumers money. “The FY 2011, 2012 and 2013 budgets appear to adopt, in concept, legislation introduced in the House of Representatives and Senate that restricts or penalizes the tax deduction for reinsurance premiums paid to foreign affiliates by domestic insurers,” the letter states. “These proposals would inhibit domestic companies with foreign affiliates from engaging in a legitimate risk management practice; ceding reinsurance to an affiliate in order to provide for greater capacity and liquidity.”

RIMS sent the letter in response to a solicitation from the FIO for industry comment for a report it is compiling on the regulatory status of insurance industry. The FIO is set to deliver the report to Congress in September, as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

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