Discriminatory reinsurance tax proposals

Rolf Tolle, Head, Lloyd’s Insurance Market Franchise Performance Directorate (FPD)

Recently, the US Senate Finance Committee issued a set of discussion draft proposals to change the US tax treatment of related-party reinsurance with offshore entities. The CEA, the European insurance and reinsurance federation believes that these proposals impose a punitive, discriminatory “tax” on global insurance and reinsurance companies and that they will have grave implications for the international reinsurance market. The draft proposal addresses only related-party reinsurance. It does not affect reinsurance between unrelated entities. The proposal amends the US Internal Revenue Code of 1986 by prohibiting insurers from deducting certain reinsurance premiums paid to their affiliates. That prohibition would apply to reinsurance premiums that “exceed the industry average”. The allowed amount of affiliated reinsurance for tax purposes would be set by the US Treasury Department each year. The following is an edited extract from the CEA’s letter, signed by Michaela Koller, CEA Director General and Tommy Persson, CEA President, to the US Senate Finance Committee and the Committee on Ways and Means of the US House of Representatives. The letter sets out the reasons for the CEA’s opposition to the Committees’ proposals