Florida House Member Says Reinsurance Taxation Would Cause Price Increases

On behalf of the citizens of Florida, I want to express my concern about the referenced Staff Discussion Draft of the bill regarding reinsurance premiums paid to affiliates, which is pending before the Finance Committee. Any change in the tax treatment of related parties will result in an increase in premiums to homeowners, business-owners, renters, and even churches and other non-profit agencies during one of the most challenging economic climates in many decades.

The availability and affordability of insurance is an issue of paramount importance in Florida, which is estimated to have more than 60% of our Nation's insured exposure to windstorms. As of 2007, Bermuda-based reinsurers provided approximately 66% of the private reinsurance to Florida based insurers and 40% of the U.S. property catastrophe reinsurance coverage overall. Bermudian and European companies provide 93% of the reinsurance for this market and thus provide critical support to Florida's economy. Moreover, this issue is relevant to states across the country, which also rely on the international reinsurance markets for critical protection for challenging risks, such as the windstorm risks in other coastal states from Maine to Texas, earthquake exposures in states such as California, and states like your own that rely on the agricultural sector, which is also principally served by non-US insurers.

By increasing taxes on foreign-based reinsurers, consumers in Florida and throughout the United States would face lowered availability to private-market reinsurance, diminished competition and less product offerings to choose from, and, most importantly, higher prices at the worst possible time. In Florida, this will also put increased burden on our state's quasi-governmental insurer, Citizens Property Insurance Corporation, and the state's quasi-governmental reinsurer, the Florida Hurricane Catastrophe Fund. As you may know, Florida is working to reduce the significant, unfunded liabilities of both these entities, and the only real solution is a vibrant (and growing) private insurance and reinsurance market that has the ability to spread Florida property catastrophe exposure across the globe.

In closing, I would like to thank you for your consideration of these concerns, and respectfully note this proposed legislation is unnecessary since the Internal Revenue Service gives the IRS sufficient, specific authority to correct tax avoidance or evasion in matters of related-party reinsurance.