Travelers CEO says U.S. tax policy sends insurers offshoreReprints
Congress needs to lower the corporate tax rate from its current 35% to discourage U.S. insurers from moving offshore, according to the head of Travelers Cos. Inc.
“Reducing this rate would end a self-defeating policy that distorts corporate behavior, weakens domestic companies and ultimately harms the U.S. economy,” wrote Travelers President and CEO Jay Fishman in an op-ed published in BloombergView.
“The insurance industry offers a good example of how this tax can have unintended consequences,” he wrote. “Over the past 20 years, the wide disparity in international corporate income-tax rates has encouraged property and casualty insurers to shift capital offshore.”
He said that the movement offshore was due partially to a provision in the federal tax code that permits insurers to move future earnings and capital associated with premiums paid domestically to more favorable tax jurisdictions by reinsuring their U.S. policies with foreign-based affiliates. Travelers is a member of the Coalition for a Domestic Insurance Industry, a group of U.S. insurers that wants Congress to approve legislation that would disallow deductions for reinsurance premiums paid to foreign-affiliated reinsurers.
Mr. Fishman said that Congress has yet to move on that, and said that a “much better fix is to lower the tax rate.” He cited a study commissioned by the Washington-based Business Roundtable that found that at a 25% rate, “U.S. companies would have acquired $590 billion in cross-border assets over the past 10 years instead of losing $179 billion in assets — a net shift, potentially, of $769 billion”.
“Unless Congress acts, we should expect more U.S. companies to use existing tax laws to level the playing field themselves, including by moving their operations or investments offshore,” he wrote. He added that “sadly, we should expect more foreign corporations to acquire iconic U.S. companies” like Switzerland-based insurer Ace Ltd.’s acquisition of Chubb Corp.