Obama Budget Proposes Big Change For Foreign Reinsurance
R Street argues the proposal would drive up reinsurance costs and make it harder for disaster-prone areas like Florida, Louisiana, Texas and California to access the global reinsurance market.
Economics consulting firm The Brattle Group Inc. estimates that the new tax would slash the net supply of reinsurance in the U.S. by 20 percent and hike U.S. consumers’ insurance bills by $11 billion to $13 billion annually.
“The damage it would do will far exceed the money it would raise,” R.J. Lehmann, a senior fellow at R Street, told Law360. “The difference will be felt in those states where reinsurance is most part of the insurance bill that a consumer pays.”
…But R Street maintains the proposed change is unwarranted. Cross-border reinsurance transactions are already subject to tariffs, and the Internal Revenue Service has the power to stop reinsurance transactions that don’t actually transfer risks from an insurer to a reinsurer, it said.
The new policy would also violate U.S. commitments to the World Trade Organization and promises not to treat foreign companies differently from domestic firms for taxing purposes, according to the group.
Moreover, R Street predicted that foreign jurisdictions would retaliate against U.S.-based companies abroad.
“It would be a salvo in a trade war,” Lehmann said.