15 January 2014

CICA objects to proposed reinsurance tax

Dennis Harwick, on behalf of the Captive Insurance Companies Association (CICA), sent an open letter to protest a proposed measure that would no longer allow US insurers to deduct the cost of reinsurance ceded to affiliates not subject to US taxes. The recipient was Max Baucus, a Democratic senator and chair of the Senate Finance Committee.

The provisions for the proposed changes are included in the International Tax Staff Discussion Draft.

Harwick wrote: “implementation of the reinsurance tax would be tantamount to a self-inflicted wound that could turn a competitive insurance market into a hard insurance market with higher prices and reduced coverage. This is bad for insurance consumers and is bad public policy.”

In his letter, Harwick argued that US insurance buyers—including captives—look to both US markets and global markets to ensure the best competitive pricing and obtain necessary coverage limits. The tax would be disruptive, he said, by treating affiliate reinsurance punitively and forcing US insurers to access non-affiliate reinsurance, rely on their own capital base or raise new capital. The result, he wrote, would be higher costs and less competition.

He wrote: “less competition in the long run means higher prices, which in turn defeats the goal of efficiently meeting the insurance risk management needs of the business entities, public entities, and not for profit organisations that sponsor captive insurers.”