US tax changes would target Bermuda
Proposals contained in Barack Obama’s FY2014 budget that would change the tax treatment of reinsurance deals conducted with non-US companies have primarily been devised to target Bermuda.
That is the view of reinsurance experts who have examined the proposals, which have already caused concern among insurers in the US, which fear increased costs, and reinsurers on Bermuda.
The administration has revived proposals that have been in the pipeline for several years. Currently, US insurance companies are allowed a deduction for premiums paid for reinsurance if the reinsurer is a non-US based affiliate. The administration’s plan would disallow that deduction.
The move has been described as a “direct attack on the business models of international reinsurers”, by Brad Kading, president and executive director of the Association of Bermuda Insurers and Reinsurers.
Another US-based legislative expert who preferred not be quoted said the “prime target of the proposed tax changes is obviously Bermuda”.
Although the content of the budget content will likely change substantially following negotiations when it hits the Senate and House of Representatives for consideration, Kading said that it is clear that the Obama administration is keen to include the tax reform measures in ongoing ‘grand bargain’ discussions taking place between Democrats and Republicans.
Lobbyists are already gearing up their arguments against the changes, however. Some reports suggest such a move would make insurance in the US a lot more expensive. One report by the Brattle Group suggests it could raise insurance premiums by between $110 billion and $140 billion over 10 years.
“This is an attack on the business model of all global re/insurers, for whom the ability to pool risk globally onto a central balance sheet is key,” said Kading. “In doing so, re/insurers are able to diversify their sources of risk, enabling them to write more capacity and ultimately helping the end consumer”. The proposed law changes threaten to bring this to an end.
“There are those in the US who are looking to take up the tax cudgel against international re/insurance.”
The industry will be watching developments in Washington with interest, with Kading warning that re/insurers must “be vigilant”. It looks likely that further heated debate and lobbying is in the offing, both in Washington and further afield.
