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Obama budget triggers lobbying war

The US insurance industry is facing another prolonged lobbying war after plans outlined in the Obama administration's budget proposed disallowing tax deductions for international reinsurance companies ceding their US business to offshore affiliates.

The law is aimed at preventing firms that operate in the US from using reinsurance with their offshore affiliates to avoid corporation tax, under the auspices of using reinsurance as a risk transfer mechanism.

Its announcement acted as a starting pistol for competing corporate interests to renew hostilities.

In a letter to senior senators, the Coalition for Competitive Insurance Rates claimed that altering the tax regime would be bad for consumers and damage businesses.

"This [tax change] is designed to punish international insurers imposing additional taxes on their US operations. It essentially imposes an isolationist tariff on international insurance companies conducting business in the US," the letter said.

The group contends that the changes would result in less insurance capacity and therefore higher prices for consumers - especially in states with high catastrophe exposure, such as Florida.

However, the president's budget has been warmly welcomed by many domestic US insurance companies.

Chairman and CEO of WR Berkley Corporation William Berkley, who is a leading figure of the Coalition for a Domestic Insurance Industry, has been an outspoken critic of the current system.

Speaking in response to the budget, he said he was encouraged that the president had pledged to close "a tax loophole" that he claimed damaged the competitiveness of domestic insurers and cost the US Treasury billions of dollars annually.

This is not the first time these two great clans have gone to war. Frenzied lobbying battles occurred after Representative Richard Neal put forward a bill in July 2009 that was broadly similar to the proposals in the budget.

The Neal Bill attracted heavy criticism from industry bodies, the EU and several European countries - including Britain - and was never enacted.

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