A representative of The Hartford, which has strongly supported legislation on this issue in the past, said the company was not involved in this particular effort and is still researching it.

Sen. Levin said in a press release that utilizing the U.S. tax code and inter-company reinsurance agreements, a number of Bermuda-based property-casualty companies are using their U.S. subsidiaries to send U.S. insurance premiums out of the country and into Bermuda, where interest can be earned on the premiums tax free.

By sending the premiums offshore, the U.S. subsidiary of the Bermuda parent is able to reduce its U.S. taxes, Sen. Levin said.

Comparable U.S.-owned insurers, he said, cannot function in the same way, and as a result are operating at an unfair competitive disadvantage.

In addition to the reinsurance issue, the amendment approved by the Senate also would prevent U.S. companies moving their headquarters and corporate charters to tax havens, while maintaining their primary facilities in the U.S., a process called corporate inversion.

“While young men and women are putting their lives on the line for us and for our country, some corporations are stiffing the U.S. by renouncing their citizenship and setting up phony corporate headquarters in tax havens like Bermuda to avoid paying their fair share of taxes,” Sen. Levin said.

He said he is pleased that the Senate adopted the amendment dealing with reinsurance and inversions, but there is still a long way to go.

“The next step is to make sure that this amendment is not stripped out during the budget resolution conference with the House of Representatives,” he said.

National Underwriter contacted two large Bermuda-based insurers, ACE Ltd. and XL Capital, regarding the Senates action, but neither firm had any immediate reaction.

During previous debates, Bermuda-based insurers have said that risk transfer pricing rules already in place assure that the type of tax avoidance that is the target of the amendment cannot take place.

Although the exact details of the Levin amendment were unclear, Sen. Levin noted in a statement on the floor of the Senate that last year, the Joint Committee on Taxation determined that legislation aimed at addressing this issue would raise some $700 million over 10 years.

That legislation was introduced in the House of Representatives by Reps. Nancy Johnson, R-Conn., and Richard Neal, D-Mass., who have introduced the legislation on several occasions.

Their most recent effort came during the 107^th Congress with H.R. 1755, which was called the Reinsurance Tax Equity Act.

Under that legislation, U.S. insurance companies that cede U.S. business to related reinsurers would be denied the deduction for reinsurance if the related company is located in a tax haven.

However, this treatment would not apply if the related reinsurer agrees to be taxed on its U.S.-based risks as if it were a U.S.-based company.

Sen. Levin estimated that the total revenue arising from both the inversion language and reinsurance language would be $4.7 billion over 10 years.

Reproduced from National Underwriter Edition, March 31, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.