A new House tax reform plan has resurrected a controversial reinsurance tax proposal.
Under a draft of the Tax Reform Act of 2014 unveiled Wednesday by House Ways & Means Committee Chairman Dave Camp, R-Mich., U.S. insurers in most circumstances would not be permitted a tax deduction for reinsurance premiums paid to a non-U.S. affiliated company that is not subject to U.S. taxation on the premiums. Such a change in reinsurance taxation has been introduced in Congress before, but has never reached a floor vote.
The issue has split the property/casualty insurance industry, with some insurers supporting the change and others, joined by the Risk & Insurance Management Society Inc., opposing it.
“As a global insurer that's proudly served customers in the U.S. for more than 100 years, Zurich uses affiliated reinsurance to pool and spread risk around the world, allowing us to provide insurance at reasonable rates for difficult to insure risks, especially those in hurricane- and earthquake-prone regions and complex business transactions,” Rich Hauser, tax director-North America for Zurich Insurance, said in a statement.
“We hope that the goal of any U.S. tax reform proposal would be to encourage economic safety and security, rather than the opposite,” he said in the statement.
The Coalition for a Domestic Insurance Industry praised the inclusion of the tax provision in the draft bill.
“We are pleased there is a consensus among the tax writers to close this significant and unintended loophole that causes our tax system to favor foreign-owned insurance companies over their domestic competitors in serving the U.S. market,” said William R. Berkley, chairman and CEO of Greenwich, Conn.-based W.R. Berkley Corp., in a statement on behalf of the coalition.
"This loophole has already caused a significant migration of U.S. insurance capital overseas. Congress should act now to fix this flaw in our system to prevent foreign companies from stripping their U.S. earnings overseas and avoiding U.S. tax. A fix is long overdue."