To Tax or Not to Tax – Battling Coalitions Dispute Bermuda ‘Loophole’

Claims Managers ‘Don’t Like Ike’ as Losses from the Hurricane Pile Up on Top of Gustav’s

Whatever goes around comes around, and in an election year it was almost inevitable that somebody would reintroduce legislation to “close the tax loophole” that they maintain offshore insurers enjoy at the expense of U.S. insurers. A couple of familiar faces — Rep. Richard Neal, D-Mass., and vice presidential candidate Joe Biden — have joined the fray on the side of the Coalition for a Domestic Insurance Industry.

More familiarly know as the “Berkley Coalition,” after its founding member W.R. Berkley Corp., the group includes The Hartford, Travelers, Markel, Chubb, Liberty Mutual, and a number of other large U.S.-based insurance companies. Chubb actually has its feet in both camps, since it owns stakes in both Allied World and Harbor Point Re, which took over its reinsurance business in 2005.

The coalition is backing HR 6969, a bill recently introduced by Neal that purports to close the loophole by disallowing the payments to offshore companies — primarily for reinsurance — to be deducted from U.S. taxes. Neal first introduced a similar bill in 2000, which eventually died.

This time, with Biden’s backing — he attacked John McCain for protecting offshore “tax shelters” — the coalition hopes to prevail. It faces an uphill battle with the Coalition for Competitive Insurance Rates, which opposes the effort. That organization vigorously denies that the world’s fourth largest insurance hub is built on tax shelters. Their main arguments are that, if enacted, the bill would raise reinsurance rates, and ultimately premiums paid by consumers; that the island provides vital capital, which would otherwise be unavailable to cover risks, such as hurricanes, and that they already pay substantial amounts in taxes.

The Senate report can be downloaded at: www.house.gov/jct/x-85-07.pdf.

“I don’t like Ike” might well be on the lips of a good number of claims adjusters after the powerful storm’s passage through the Caribbean and on into Texas. Risk Management Solutions’ latest estimates of U.S. onshore and offshore insured losses from Hurricane Ike are from $7 to $12 billion, changing its original estimate of $6 to $16 billion.

AIR Worldwide’s estimates of insured losses to onshore properties in the U.S. from Hurricane Ike are between $8 and $12 billion, with an expected loss of $10 billion. Its estimate of losses to offshore assets in the Gulf of Mexico is between $600 million and $1.5 billion with an expected (mean) of $1.0 billion.

Preliminary individual estimates are still coming in, often coupled with updated loss estimates from hurricane Gustav. These include: Swiss Re — Ike, $250 million, Gustav, $50 million; PartnerRe — Ike, $175 to $210 million; Max Capital — Ike and Gustav, $35 to $50 million; Hannover Re — Gustav, $146 million; Flagstone Re — Ike, $85 million.

Ike also caused a lot of damage outside of the U.S., notably in Haiti and the Turks and Caicos Islands. The Caribbean Catastrophe Risk Insurance Facility (CCRIF) announced that would make a payout of approximately $6.3 million to the Turks and Caicos Islands, its first payment for 2008.

Topics USA Hurricane