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Anyone who does not believe this could happen should take a look at


Great Britain, where the vast majority of independent underwriters at Lloyd’s have moved their headquarters from London to Bermuda. And they should consider the reinsurance segment of the US property casualty business, which has already moved offshore. Both were driven by a tax advantage of similar magnitude.


Nearly every major reinsurer based in the US has either left the reinsurance


“The property casualty industry is a major American industry, with over $500 billion dollars of revenue and more than 2.1 million jobs. Over the past five years, the industry has paid nearly $70 billion in taxes. But offshore companies avoiding US taxes threaten this vital part of the American economy.”


business or reincarnated in an offshore tax haven such as Bermuda or the Cayman Islands. In addition, new company formations have only occurred offshore in the last decade. Following Hurricane Katrina in 2005, over $30 billion of US capital was raised to establish new offshore vehicles, which write primarily US business while avoiding US income tax. No significant new re/insurance companies were formed in the US during that time.


The property casualty industry is a major American industry, with over


$500 billion dollars of revenue and more than 2.1 million jobs. Over the past five years, the industry has paid nearly $70 billion in taxes. But offshore companies avoiding US taxes threaten this vital part of the American economy. Let’s remember that the insurance industry provides a key part of the confidence our society needs to survive in these uncertain times. Also, since US insurers presently represent some 15 percent of the total municipal bond market, greater migration of capital to tax-advantaged locales could also adversely affect the market for municipal bonds. (If you don’t pay taxes, you don’t need to buy tax-free municipals.)


Fortunately, US Representative Richard Neal (Democrat, Massachusetts)


has introduced legislation (HR 3424) to alleviate this disparity and prevent America’s primary insurance industry from being driven offshore and taking with it the billions in annual tax revenues that it now generates for the US Treasury.


Predictably, offshore insurers are against the legislation. Yet, faced with


the simple and compelling logic that companies engaged in like businesses should pay like amounts of tax, they are resorting to scare tactics to mount their opposition. Their strategy is to confuse the real issues by claiming that the legislation will diminish the benefits that the offshore reinsurance community provides, and adversely affect pricing and capacity for catastrophe reinsurance in the US insurance market.


But the facts are undeniable and the opponent’s claims are simply false.


The truth is that Bermuda-based insurance groups provide less than one percent of homeowner insurance in coastal states and less than 5 percent of commercial multiperil insurance.


The bill will not diminish the benefits of offshore reinsurance—neither


in catastrophe-exposed coastal states nor otherwise. It would apply only to certain excessive non-taxed reinsurance premiums paid by subsidiary companies to affiliates with respect to US primary risks. It would not affect reinsurers providing third-party reinsurance to unaffiliated insurers. Consequently, it would have no effect on the market for catastrophe coverage that protects Americans from natural disasters or the market for crop insurance, because those cases are covered by unaffiliated reinsurers.


36 | INTELLIGENT INSURER | November 2010


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