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Speaking at A.M. Best's Review/Preview ratings conference, W.R. Berkley Corp. Chairman and Chief Executive Officer William R. Berkley said he was heartened by news that projections in the President's budget anticipate increased tax revenues from offshore financial transactions, some of which will likely include insurance activities.
At present, there is no formal legislation in either branch of Congress that changes the treatment of related party reinsurance transactions with offshore affiliates with regard to risk underwritten in the United States.
In 2008, U.S. Rep. Richard Neal, D-Mass. introduced H.R. 6969, to address concerns raised by the 14-member Coalition for a Domestic Insurance Industry. That group includes U.S.-based property/casualty insurers such as W.R. Berkley Corp., Berkshire Hathaway, Chubb Corp., Hartford Financial Services Group, Liberty Mutual, Safeco Corp. and Travelers Cos. The group contends that shifting profits on business written in the United States to jurisdictions with favorable tax treatment such as Bermuda and the Cayman Islands have made it increasingly difficult for U.S.-domiciled firms to compete. That legislation expired.
Neal's original bill called for limiting deductions for related-party reinsurance cessions to the average percentage of premium ceded to unrelated reinsurers. Excess amounts would be determined by line of business, and the U.S. Treasury would be authorized to enforce its provisions.
Interest in domiciling in Bermuda got a boost in 1986 when the U.S. changed the tax treatment for insurance reserves. Some companies moved to Bermuda, which did not have the same tax restriction. That activity has accelerated in recent years. "What evolved is a structure where companies in Bermuda or other foreign domiciles would set up U.S. subsidiaries, write domestic business, reinsure the business to their foreign domicile and effectively pay no tax," Berkley said.
"I don?t believe the nation that generates 40-plus percent of the world?s property/casualty business should effectively create a tax structure that causes its industry to leave, Berkley said, referring to the United States. "That is what happened in the U.K."
A discussion draft was submitted for comment by the Senate Finance Committee staff in December 2008.
Berkley estimated the chances of a new bill's passage at 50/50 or better. "It means revenue in Washington. This is not unfair taxation. It just puts them in the same position we are in." Berkley this month became chairman of the American Insurance Association.
Berkley Insurance Group has a current Best's Financial Strength Rating of A+ (Superior).
(By: Lee McDonald: Lee.Mcdonald@ambest.com)
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