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Friday 21 October 2011
Author: Russell Group

The CEA, the European insurance and reinsurance federation, has issued a stinging rebuke to the US House of representatives over its latest proposals on the issue of taxation on foreign underwriters.

In a statement the CEA said it “strongly oppose” bills currently being debated in the US House of Representatives by Congressman Richard Neal and the US Senate by Senator Robert Menendez. The association said both bills would increase the tax burden on foreign insurance providers in the US, leading to their possible withdrawal from US markets and therefore reduced US insurance capacity and ultimately increased prices for US businesses and consumers.

“The proposals are discriminatory, would have a negative impact on the US insurance market and would violate US double-tax treaties,” said MichaelaKollerCEA director general.

The proposals would disallow tax deductions on reinsurance ceded by non-US companies to offshore affiliates. The CEA said: “This would create anunlevel playing field with US re/insurers, as it fails to take into account the tax treatment in the country in which the affiliate is domiciled. EU insurers already pay substantial rates of tax.”

The association said it is also concerned about the impact of the proposal on the status of US commitments regarding insurance services under the WTOGeneral Agreement on Trade in Services (GATS), which stipulates that (re)insurers of any other WTO member must be treated no less favourably than US suppliers of such services.

An economic impact study by economic consultants the Brattle Group estimates that the tax proposed by the Neal bill would cost consumers more than $10bn a year and would reduce US reinsurance capacity by 20%.

“Non-US insurers and reinsurers provide a significant proportion of the cover for US natural catastrophes. At a time when many US states face difficulties obtaining sufficient, affordable cover, enacting such legislation would be against consumers’ interests,” said Ms Koller.

The CEA is co-signatory to a letter by the Coalition for Competitive Insurance Rates to members of the US House of Representatives Committee on Ways and Means opposing the tax proposals.