Bill is bad news for international reinsurers
By Walter A. Bell
September 21, 2009
Florida’s most recent hurricanes conjure up images of destruction and chaos, and while we can’t always predict disasters, we can attempt to mitigate them. Unfortunately, new legislation in Washington threatens our ability to do that.
A proposal in the House of Representatives could jeopardize the amount of reinsurance, a major source of financial support for disaster recovery, available. The bill, HR 3424, calls for a significant tax on internationally based reinsurers as a supposed "tax haven" crackdown. The proposal, however, would negatively impact all international reinsurers, whether located in a "tax haven" or not. Moreover, international reinsurers receive no U.S. tax benefit from losses on their U.S. business. Rather than closing a "tax loophole," this would create an uneven playing field by taxing international reinsurers twice, once in the United States and once at home.
Global reinsurance helps rebuild businesses and lives following catastrophes by providing vital financial assistance to pay claims. Global reinsurance spreads risk worldwide, so it can easily cover major disasters. For example, 60 percent of the $59 billion in payment for 2005’s Hurricanes Katrina, Rita and Wilma came from international reinsurers.
According to a report by The Brattle Group, passage of the legislation would result in a 20 percent decrease in reinsurance capacity and a $10 billion to $12 billion increase in price per year to U.S. consumers. With Florida’s total value of insured coastal exposure about $2.5 trillion, according to AIR Worldwide, much of the state’s coastal property could be vulnerable.
Should this bill pass, consumers will pay the biggest price and, in turn, overwhelm state catastrophe funds. Florida’s Hurricane Catastrophe Fund is $7 billion short of what it takes to cover a major storm, and this legislation would force more homeowners to use it, further aggravating the fund’s deficit. Already standing in opposition is the Florida Office of the Insurance Consumer Advocate, and the consumer group, The Florida Consumer Action Network.
As it has in the past, Congress should reject this bill. Its passage would mean potentially more expensive insurance, and this increase in pricing would likely translate to a longer, more expensive road to recovery in the event of catastrophe. Floridians should urge their congressional members to vote against this, giving the state a better shot at weathering potential major storms.
Walter A. Bell is chairman of Swiss Re American Holding Corp. and a former insurance commissioner of the Alabama Department of Insurance.