Tax Proposal Would Hurt American Consumers

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Tax Proposal Would Hurt American Consumers

Affiliated Reinsurance Penalties Would Imperil Insurance
Availability, Affordability in Vulnerable Areas 

An analyst at the Competitive Enterprise Institute says that the Obama
administration’s proposal to impose special new taxes on foreign affiliated
reinsurance transactions would have devastated consequences for insurance
consumers living in vulnerable areas.  Currently, U.S. based subsidiaries that
purchase reinsurance—insurance for insurers–from their own non-U.S.
subsidiaries can deduct the transaction costs like a business expenses and pay
taxes at the prevailing rate in the area where the seller of the affiliated
reinsurance is based. This practice of purchase from affiliates, common in all
globalized industries, provides for efficient distribution of capital, increases
market competition, and allows for increased consumer choice. Under the Obama
administration’s proposal, massive new taxes would be levied on reinsurers
making the purchase of affiliated international reinsurance very unattractive.
This will decrease the supply of reinsurance while increasing its price. With
less reinsurance, primary carriers will have a harder time issuing primary
insurance.

“These changes are going to hurt American
consumers, particularly those in vulnerable areas” says Eli Lehrer, a Senior
Fellow at the Competitive Enterprise Institute.  “Homeowners that live in
hurricane-prone states and doctors seeking malpractice insurance in states with
difficult tort law environments will be hit the hardest. If this passes, we’ll
see a further retreat of the areas where insurance is already expensive and
difficult to find.”