By Silla Brush - 02/03/10 01:01 AM EST
President Barack Obama’s budget is driving a wedge between foreign and domestic insurance companies.
Buried in the budget is a proposal that would change tax policies related to insurers that do business in the United States and that have offshore affiliates.
Some insurers would be denied a tax deduction for reinsurance premiums that they send to their offshore affiliates, many of which are based in Bermuda. The administration wants to raise $519 million with the tax between 2011 and 2020.
The administration has moved to crack down on international tax havens and companies that try to shift tax burdens away from the United States. The insurance issue has been hotly debated in the industry and among some lawmakers, but this year’s budget is the first with a major policy proposal.
Both sides of the issue on Tuesday were still trying to understand the president’s proposal, laid out in the Treasury Department’s “Greenbook.”
But the two sides are split: Some domestic firms want the provision expanded and some foreign interests want it scrapped.
W.R. Berkley and a group of U.S.-based insurers lobbied Congress to close what they consider a tax loophole that benefits large foreign firms. William Berkley, chairman and CEO of the company, said in an interview that the president’s proposal does not go far enough.
“Clearly, this would not at all be leveling the playing field,” Berkley said.
Berkley said that the proposal was drafted in such a way that it would not have as much impact as the Neal bill or draft legislation that the Senate Finance Committee circulated last year.
“Frankly, we were disappointed that it wasn’t more direct,” Berkley said of the budget proposal. “We’ve made our case to Treasury now for a couple years. We’re obviously gratified it’s in the budget in the first place. We appreciate that and hopefully we’ll be able to convince people that the Neal bill or the Senate Finance Committee draft are more appropriate for the levels of taxation.”
Berkley is the main backer of the Coalition for a Domestic Insurance Industry, which spent more than $400,000 lobbying lawmakers in 2009, according to congressional records.
Opponents of congressional efforts include major international insurance firms, including Swiss Re, Zurich Financial Services and ACE Group of Companies.
The Organization for International Investments and the Association of Bermuda Insurers & Reinsurers both opposed the Neal bill. Opponents of the bill spend millions of dollars lobbying federal lawmakers on a wide range of issues each year.
“Affiliated reinsurance helps manage volatile, catastrophic insurance risk, whether it involves natural disasters like hurricanes, or man-made ones like terrorist attacks,” said Brad Kading, head of the Bermuda insurers group.
Critics of the legislation also released a study last year that said the bill would increase premiums paid each year by $10 billion or $12 billion.
The Risk and Insurance Management Society Inc., a New York-based nonprofit, said on Tuesday that the president’s proposal would have a “chilling effect” on insurance companies that do business in the United States.