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“I think it’s also about the regulators being intelligent about how they enforce compliance and avoid a


situation where they say compliance looks like ‘x’ and where they give companies a tick box. The regulators may have to change and explain what ‘good’ looks like—it’s a constantly- moving target and as soon as you get to a situation where companies are in compliance, the defi nition of ‘good’ is going to jump up.”


important. If you take out State Farm at 15 percent, you take out Citizens at 15 to 20 percent, then 10 percent of the Florida home insurance market is pretty important. That 10 percent of three or four companies would be targeted in any affi liated reinsurance measures.


The second way Florida gets hit is this rise in general reinsurance prices, and


Brattle comes to the conclusion that the measure hits Florida home owners with about $266 million in extra costs and, overall, the Florida market pays an extra $600 to $700 million. There are two separate consumer effects that the Brattle report documents, and I think the LECG analysis takes the Florida home insurance market and takes a company such as State Farm, and State Farm’s market share ends up being part of the analysis, which is an irrelevant point to that, and it takes the Florida companies’ national writings, rather than looking at a Florida domestic-only company and its impact on the market.


John, can I ask what ratings effects there might be? Imagine that there is a European continental reinsurer with 30 to 40 percent of its portfolio in the US, which suddenly had a tax imposed that impedes its business in the US—will there suddenly be a ratings implication?


ANDRE: Financial strength is a core portion of our analysis, and if a company did indeed have something placed on it like that, it would be less apt to earn the profi ts it expects, and since our ratings are prospective, it would certainly have an impact on its rating.


Profi le could certainly be impacted. Diversifi cation is very important to


a lot of our ratings and we give credit for it in our capital model, since we realise that if a company is diversifi ed, it is less likely to have losses


26 | INTELLIGENT INSURER | November 2010


Romy Comiter LECG


simultaneously from non-correlated lines of business. So if it were to come in, there would be a number of impacts, but I’m not going to predict doom and gloom. There are some very creative reinsurers that might work out a solution—to make [the Neal Bill] a hurdle that they could get around. But it could be quite burdensome for a number of different issues in terms of our ratings.


Do we think that one of the problems is that reinsurance is just that complex that it’s diffi cult to persuade lawmakers of all of the diffi culties of bringing a new tax into the equation?


SPILLER: The issue that does strike me about this bill is how discriminatory it is against non-US entities and the US has a network of tax treaties with most of the major jurisdictions, other than jurisdictions that have no corporate tax systems. I think that in many cases, those tax treaties are going to prevent the application of a discriminatory tax on affi liates of the non-US jurisdictions, the other party to the tax treaty, so I think that we could end up in a situation where the lawyers are going to be doing fairly signifi cant tax planning to work around that problem. We see that now anyway with issues such as Federal Excise Tax, where you can work your way around Federal Excise Tax by taking business out of the US and into tax treaty jurisdictions such as the UK, and with appropriate planning, hold the business there, but at the same time, provide the capital to support that business out of another non-tax-paying jurisdiction, such as Bermuda. We see quite a lot of those structures being used now and that’s where I think that this sort of treaty would take you to advanced tax planning solutions.


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