WASHINGTON–Legislation aimed at easing the tax burden on small property-casualty insurers was introduced in the Senate today by Sen. Christopher “Kit” Bond, R-Mo., and Sen. Blanche Lincoln, D-Ark.

The bill, known as S. 2040, would raise the limits on the income election threshold for small insurers. Such companies under this threshold level can choose to be taxed only on their investment income, not premiums.

Under the measure the threshold for small insurers would increase from $1.2 million to $1.971 million, with a provision for the threshold to increase with inflation in future years.

Under current law, these small companies have the option to be taxed only on their investment income, providing the greater of net or direct written premiums falls between $350,000 and $1.2 million for the year. These levels were set in 1986, and proponents of the new legislation argue that the inflexibility of the maximum limit has impeded the growth of small companies.

“Since the provision was never indexed for annual inflation, this amount has remained the same since 1986, thus stifling the growth of small property-casualty companies that provide valuable and affordable services for their customers,” said Marliss Browder, senior federal affairs director for the National Association of Mutual Insurance Companies.

Ms. Browder said that “because small mutual property-casualty insurance companies have such limited financial resources, all of their assets must be preserved for claims paying to ensure their important niche market in America.”

These small companies, often known as “farm mutuals,” are typically formed by groups of farmers looking to protect their assets. Those companies with less than the minimum $350,000 in net premiums were exempted from taxation, but that threshold was changed to $600,000 in “gross receipts” under the 2004 Pension Funding Equity Act.

That measure was passed following concerns that some investment companies were taking advantage of the law by establishing small insurers as a tax shelter for private individuals, which provided little coverage while maintaining large cash surpluses and investment incomes.