House panel takes up offshore reinsurance tax proposal

WASHINGTON—Proponents of a controversial tax proposal targeting offshore reinsurance transactions pressed members of Congress on Wednesday to support the measure, arguing the current system creates an unlevel playing field, while opponents said the bill would raise insurance costs.

At a House Ways and Means Committee hearing, executives from The Chubb Corp. and W.R. Berkley Corp. testified that an “unintended loophole” in the tax code allows foreign-based reinsurers to avoid billions of dollars in U.S. tax annually.

The bill, H.R. 3424, which was introduced by Rep. Richard E. Neal, D-Mass., seeks to limit tax deductions for reinsurers that cede large portions of their U.S. premiums to offshore affiliates.

Opponents, including the Washington-based Coalition for Competitive Insurance Rates and the Risk & Insurance Management Society Inc., issued statements Wednesday reiterating their opposition to such a move.

But opponents who argue that the legislation will adversely affect capacity and pricing in the U.S. “are just using scare tactics that obscure the real issue,” John J. Degnan, vice chairman and chief operating officer of Warren, N.J.-based Chubb, told the Subcommittee on Select Revenue Measure.

Meanwhile, a Florida official told the subcommittee the proposal would result in higher insurance costs for consumers. Sean M. Shaw, Florida's insurance consumer advocate, cited a recent study by Cambridge, Mass.-based economic and financial consulting firm The Brattle Group, which predicted Rep. Neal's plan would cost U.S. consumers $10 billion to $12 billion more per year to obtain the same coverage, as reinsurers pass on the cost of their less favorable tax treatment.

Another opponent to the bill emerged when Rep. Kendrick Meek, D-Fla., said he “strongly opposed” the measure because “Florida residents are already on their knees” in trying to cope with insurance premiums.

In addition, Rep. Meek told the subcommittee the entire Florida congressional delegation is “solid” in its opposition to this bill.