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risk areas with continued insurance options. Proposals such as HR 3424 damage this system and yet are being proposed by the very companies that have shown neither the intention nor the ability to fill in the gaps left behind should the foreign companies be forced to reduce their presence in these high-risk areas. For this reason, the Neal Bill has been publicly opposed by dozens of businesses, state officials and consumer groups who would be affected by the proposal. These include the insurance commissioners from Florida, Louisiana, North Carolina, South Carolina and Mississippi.

Beyond the negative impact it would have on consumers in the United

States, the Neal Bill would damage US trade relationships by violating a long-standing US tax policy that calls for the application of an arm’s- length standard for related party, cross-border dealings. In the insurance industry, related party transactions are well documented; they are subject to approvals by state insurance regulators, and abundant comparative market information is available to be used to enforce transfer pricing rules. The Neal proposal contradicts decades of US tax and trade policy, may be inconsistent with existing US tax treaty obligations and will likely spur retaliatory actions by other countries.

One of the foundational principles of the World Trade Organization

(WTO) is that a country cannot treat a foreign company worse than it treats its own companies. HR 3424 clearly singles out foreign reinsurers for treatment worse than US reinsurers. Specifically, it subjects foreign reinsurers—but not US reinsurers—to an arbitrary test to limit the tax deductibility of reinsurance premiums paid to them by their US-based affiliates. This is why the European Union and several individual countries have complained that the Neal Bill violates US WTO commitments and US tax treaties. In fact, US insurance companies benefit enormously from open markets and are among the most aggressive in seeking foreign customers.

Earlier this year, Angelos Pangratis, acting head of the European Union Delegation to the United States sent a letter to Treasury Secretary Tim Geithner questioning a proposal similar to HR 3424, which has been included in President Obama’s FY 2011 budget:

“We believe the proposal is at odds with the principle of a level playing

field for all US insurers and reinsurers, by introducing a tax regime which would penalise foreign-owned US insurance companies that reinsure their risks with affiliated foreign companies. This penal tax regime would only apply to foreign-owned insurers; thus it would not result in protecting the US tax base but in creating a disadvantageous tax environment for foreign insurance providers.”

Similar objections have been raised publicly by the governments of

Germany, Switzerland and the United Kingdom. Clearly, HR 3424 is at best questionable in regards to America’s treaty obligations. The strong objections of both close allies and experts in international trade should be cause for concern for policymakers charged with regulating the insurance industry.

Supporters of the Neal Bill don’t represent the entire US insurance industry, just a vocal minority with its own interests. Despite claims that

34 | INTELLIGENT INSURER | November 2010

“ Proposals such as HR 3424 damage this system and yet are being proposed by the very companies that have shown neither the intention nor the ability to fill in the gaps left behind should the foreign companies be forced to reduce their presence in these high-risk areas.”

they are put at a competitive disadvantage, the facts do not support the suggestion that international insurance companies have an advantage over the proponents of the Neal Bill in raising capital. By all measures (comparative profitability, stock price and return on equity), the domestic insurance industry has been thriving as part of the global marketplace. In fact, the Neal Bill would unbalance the playing field and force foreign companies out of some of the most competitive insurance markets in the world. Already, dozens of insurance companies, foreign and domestic, as well as insurance industry organisations have publicly opposed HR 3424. They are joined by more than 100 business groups, state officials, trade experts, foreign governments and consumer advocates who know that the Neal Bill is bad for consumers and bad for the industry.

The widespread opposition to the Neal Bill should give policymakers and

the insurance industry pause. Protectionist proposals like this, which try to shut out the important and increasingly international insurance industry, would be damaging to consumers and to the insurance companies that have worked to create a competitive, thriving international marketplace. Throughout the next decade and beyond, the US Congress and insurance industry regulators should seek to make the US system more competitive, while the insurance industry continues to work together to face the challenges and opportunities of the ever developing and interconnected global world in which we live.

Kathy Doddridge is the government affairs director for the Risk and Insurance Management Society, Inc., and a member of the Coalition for Competitive Insurance Rates. The Coalitions’ website is:

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