US lawmakers were yesterday considering revisions to the section of a tax overhaul bill that would have a costly impact on some Bermudian-based insurance groups.
Meanwhile, Mike McGavick, chief executive officer of Bermudian-based XL Catlin, said even if the tax bill passed in its original form, it would not change the benefits of operating in Bermuda by much.
A proposed 20 per cent excise tax on transactions between US companies and their offshore parent companies would take a heavy toll on groups with US subsidiaries which cede premiums back to Bermuda in the form of reinsurance.
But yesterday there were signs of hope for the island’s flagship industry that the measure — which would affect multinationals in all industries — would be revised.
Kevin Brady, the Republican Congressman who is also chairman of the tax-setting House Ways and Means Committee, said yesterday: “Insurance is an industry where I think there are some unintended consequences from the first draft. I am re-examining those provisions to make sure we got it right.”
The tax would make insurance more expensive for US consumers by raising the cost of reinsurance coverage from overseas.
The value of non-domestic reinsurance cover has been shown in recent months in the aftermath of hurricanes Harvey, Irma and Maria. According to the Association of Bermuda Insurers and Reinsurers, the Bermudian market alone will pay out at least $25 billion in claims resulting from the devastating storms.
Mr McGavick, speaking yesterday at the S&P/PwC Bermuda Reinsurance conference in Hamilton, said the Congress was trying to push through complex tax legislation in a matter of months, when it would normally be expected to require about a decade.
“It remains to be seen whether there is change at all,” Mr McGavick said.
“The false patriotism of asking your country to put up a tax barrier in order to make more money for your shareholders, at the expense of your citizens, who will pay more for their insurance, is a strange form of patriotism.
“We live in a world where capital is global and where the best solutions to problems are shared across the globe — perhaps nowhere demonstrated more efficiently than in reinsurance. And to deprive your citizens of the benefit of that system strikes me as a strange decision.
“And because it’s such a strange decision, it strikes me as one that is unlikely to be made.
“Having said that, even if the package passed, the totality of benefit that comes from operating in one of the world’s great insurance and reinsurance centres does not go away — it just changes, but not very much.”
The bill also proposes slashing the tax rate on corporate profits to 20 per cent, which would itself narrow Bermuda’s tax advantage over US competitors, while the excise tax on cross-border transactions would narrow it further.
In a statement yesterday, Bermudian-based Hiscox said “this measure could have an impact on our internal group reinsurance arrangements”.
The Coalition for Competitive Insurance Rates, a lobbying group that includes the US arms of several Bermudian reinsurers, has been busy since the bill was introduced last Thursday.
The CCIR said it was “unfathomable” that the bill proposes “a measure that will shrink competition in the insurance marketplace and increase the cost of insurance for consumers”. It has described the measure as a “hurricane tax”.
The excise tax measure came as a surprise even to many tax experts and has provoked a strong lobbying response from other industries that would face big impacts, including pharmaceutical companies and automakers.
Ray Beeman, co-leader of EY’s Washington Council advisory services group described it as “the atomic bomb” in the proposed legislation.