White House Targets Reinsurance Tax Deduction - Capstone Brokerage

Reinsurance tax law

By: Mark Hofmann (Business Insurance) February 2015

The Obama administration is calling again to disallow the deduction for excess nontaxed reinsurance premiums paid to affiliates.

The proposal, contained in the administration’s budget proposal, mirrors those made previously by the White House and in legislation introduced several times by Rep. Richard Neal, D-Mass. The proposed change has split the insurance industry, with some U.S. companies favoring the change for competitive reasons and others, along with the Risk & Insurance Management Society Inc. opposing it because it could raise the price of reinsurance.

“Reinsurance transactions with affiliates that are not subject to U.S. federal income tax on insurance income can result in substantial U.S. tax advantages over similar transactions with entities that are subject to tax in the United States,” said the administration in its explanation of the budget issued Monday. “The excise tax on reinsurance policies issued by foreign reinsurers is not always sufficient to offset this tax advantage. These tax advantages create an inappropriate incentive for foreign-owned domestic insurance companies to reinsure U.S. risks with foreign affiliates.”

The change would be effective for policies issued in taxable years beginning after Dec. 31, 2015.

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