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Legislation that would change the tax treatment of reinsurance ceded to non-U.S. affiliates of domestic insurers is unlikely to be enacted as a stand-alone measure, but might pass as part of a larger budget or tax reform bill, insurance industry sources say.
Companion bills introduced by Rep. Richard Neal, D-Mass., and Sen. Bob Menendez, D-N.J., would disallow tax deductions for reinsurance premiums ceded to affiliates in jurisdictions not subject to U.S. tax law. The measure has been introduced and failed in previous sessions.
President Barack Obama included a similar provision in his 2013 budget, estimating that it would raise $6.2 billion in revenue over 10 years.
Several U.S. insurers supporting the legislation argue that it closes an unfair tax loophole, while a wider group of opponents — including many multinational insurance groups and the Risk & Insurance Management Society Inc. — claim that it will reduce market capacity and raise costs for policyholders.
While several sources say the measure likely has too much opposition to pass on its own, opponents say it may be rolled into a tax reform bill now being drafted by the House Ways and Means Committee, or into a larger budget bill.
“The threat is some middle-of-the-night, last-minute deal,” said Bradley L. Kading, president of the Association of Bermuda Insurers and Reinsurers, which opposes the measure. “That's what we've always been waiting for.”