NU Online News Service, Aug. 2, 1:12 p.m. EDT
A bill before Congress that would tax offshore reinsurance premiums would benefit the three major global insurance brokers if passed, a financial analyst said in a note today.
Meyer Shields, an analyst with Stifel Nicolaus, said passage of such a bill would benefit Aon, Marsh and Willis for two reasons.
One, rates would rise, improving the commissions the brokers receive. He noted that despite the rate increase, it would not signal a hard market because the beneficiary of the premium increase would be the Internal Revenue Service. Earnings for insurers and reinsurers would be unaffected by the bill.
The other benefit for the brokers, he noted, is that it would increase what he termed "swapping" of reinsurance contracts between different companies. The Neal bill (H.R. 3424), sponsored by Rep. Richard Neal, D-Mass., only affects affiliates of offshore companies. The assumption, he said, is that companies would swap similar size books of reinsurance, thus qualifying for tax relief.
These deals would benefit reinsurance brokers, he noted, because of the increased number of transactions that would take place if the bill goes into effect.
The Neal bill, along with other attempts to tax foreign reinsurance premiums, has been the subject of heated debate within the industry over the past few weeks. Some have referred to the bill as protectionist and anti-competitive, while others say the bill would have little to no impact on capacity or rates.
Stifel Nicolaus noted that it does seek to do business with the three brokers and it intends to receive some compensation from March & McLennan Companies, the parent company of Marsh, in the next three months for investment banking services it provided.
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