Driscoll warns Washington of potential impact of reinsurance tax
Proposals by some US lawmakers to raise more taxes from non-US reinsurers — including those based in Bermuda — would damage the industry’s ability to bear more flooding and terrorism risks, a hearing in Washington heard yesterday.
The subject was touched upon by Kean Driscoll, CEO of Bermuda-based Validus Re, in response to a question from Republican Representative Dennis Ross, of Florida, during the House Financial Services’ Housing and Insurance Subcommittee hearing on “The Future of Terrorism Insurance”.
Rep Ross asked Mr Driscoll: “Would [the Obama-Neal-Menendez reinsurance tax] limit the capacity or capability of insurers and reinsurers to take on more risk from terrorism or flooding (TRIA and NFIP) and thus be counterproductive to our long term goals of reducing the size of government insurance programmes?”
Mr Driscoll replied: “Yes. Reinsurers need to be able to pool risk to gain diversification. Any limits on affiliate reinsurance would impede global risk pooling and would fragment group capital and would impede market development and likely increase consumer prices.”
Brad Kading, president and executive director of the Association of Bermuda Insurers and Reinsurers, said in response to the hearing: “I was pleased to see US Representative Dennis Ross today recognise the dangers of legislation (HR 2054 and S 991) introduced by Reps Richard Neal and Bill Pascrell and Sen Robert Menendez, and included in President Obama’s current and past budget, that would tax reinsurers and unintentionally change the tax treatment of affiliated reinsurance providers.
“As a representative of a natural disaster-prone state, Rep Ross understands the negative consequences that a tax on reinsurance would have on home and business owners in Florida.
“The Obama-Neal-Pascrell-Menendez reinsurance tax would limit the capability of insurers and reinsurers to underwrite risk for perils such as hurricanes, floods and terrorism, leading to diminished capacity and higher costs for the consumers that need coverage the most.”