WASHINGTON (May 21, 2013) – The R Street Institute today warned that new legislation introduced by Sen. Bob Menendez, D-N.J., and Rep. Richard Neal, D-Mass., would do serious damage to U.S. property and casualty insurance markets, while also violating international commitments made to trading partners.

Under the terms of S. 991 and H.R. 2054 – introduced this week in the U.S. Senate and House, respectively – insurers domiciled in the United States would be denied deductions for reinsurance paid to affiliates based in any jurisdiction not subject to U.S. tax law.

Similar to a proposal contained in the White House’s Fiscal Year 2013 Budget, the bills threaten to reduce capacity and increase costs for several key U.S. insurance markets, including coastal property/catastrophe business, earthquake risks, crop insurance and large account directors and officers liability. Analysis by the Brattle Group has found this change in tax law would reduce the net supply of reinsurance in the United States by 20 percent and increase the cost U.S. consumers pay for insurance by $11 billion to $13 billion annually.

“This is a protectionist measure that serves the interests of certain large domestic insurance companies by discouraging foreign-based competitors from devoting their capital to U.S. risks,” R Street Senior Fellow R.J. Lehmann said. “It also is simply bad policy, in that it would tend to concentrate U.S. risks within the United States, rather than allowing the global reinsurance system to spread them throughout the globe.”

Lehmann added that the proposals appear to violate the United States’ commitment under the General Agreement on Trade in Services not to subject companies to more punitive or burdensome taxation based solely on where the company is based. In addition, the United States is a party to more than 50 in-force double-tax treaties that include commitments to non-discrimination in the tax code.

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