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Congressional hearings crystallise Neal Bill debate

Congressional committee hearings held in Washington last week gave a fresh airing of the debate around the Neal Bill (HR 3424) proposals to curtail tax relief on affiliated reinsurance transactions between US insurers and foreign-domiciled reinsurers.

Speaking against the proposals to the influential Ways and Means Committee, Sean M Shaw, insurance consumer advocate for the state of Florida, claimed that US consumers would expect to pay an additional $11bn to $13bn every year in premiums because of "this tax increase".

Meanwhile, Bill Berkley, CEO of US specialty insurer WR Berkley and a longstanding advocate of the reforms, maintained they will merely close a tax loophole and level the international tax playing field.

The debate has even migrated online. Rival lobbying groups, the pro-bill Coalition for a Domestic Insurance Industry and the anti-bill Bermuda-backed Coalition for Competitive Insurance Rates, posted contrasting videos onto the YouTube website.

Shaw said that US companies buy approximately half of their $100bn in reinsurance from foreign reinsurers. He added that overseas insurers' US affiliates write 14 percent of the home and property insurance in the Gulf and Atlantic States, as well as 11 percent of home insurance and 40 percent of business property insurance in Florida.

"Quite simply, if you choose to impose a punitive tax on insurance, consumers will have less insurance," Shaw said.

"And they'll pay more for it."

The consumer advocate cited a Brattle Group and Wharton School of Business study. This claims that the bill would shrink the total supply of reinsurance by about 20 percent, meaning Floridians would pay in excess of $800mn per year in additional insurance costs.

He also testified that the insurance commissioners in Louisiana, Mississippi, North Carolina and South Carolina all oppose the measure.

Meanwhile, Berkley maintained that the bill would have "little or no impact on the availability or cost of catastrophic coverage in coastal areas or other US markets", because it does not impact third party reinsurance that provides capacity needed for catastrophic coverage.

Berkley added that "fixing the loophole" is not protectionist and does not violate tax treaties or trade agreements, because the bill does not favour domestic companies over foreign competitors.

He argued that the proposed legislation simply "ensures that US insurers and their foreign-based competitors are taxed similarly in writing US business".

The status quo in which US companies are able to cede unlimited reinsurance to offshore parents has already caused a significant migration of insurance capital abroad, the WR Berkley CEO argued. If left unchecked, much more of the US insurance capital base will eventually migrate abroad, he added.

And, quoting an Insurance Insider report of a speech given in London in February by John Berger, president and CEO at Harbor Point (now Alterra Capital), he added: "One of my foreign competitors recently put it more boldly, chastising US companies for not relocating to tax havens: 'If you're not in one of these [offshore] domiciles, shame on you. All things being equal, the tax advantage will win over time'."

The Neal bill is currently stalled in the US Congress.

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