Under the provision, an insurance company would not be allowed a deduction for non-taxed reinsurance premiums paid. In addition, the insurance company's income would be determined by not taking into account (so no deduction is allowed for) any additional amount paid with respect to the reinsurance for which the non-taxed reinsurance premium is paid to the extent he additional amount is not properly allocable to the premiums.

Finally, according to a Finance panel document, the insurance company's income is determined by not taking into account any return premium, ceding commission, reinsurance recovered or other amount received by the insurance company with respect to the reinsurance for which the non-taxed reinsurance premium is paid to the extent the item is properly allocable to the premium.

Thus, these items of income (to the extent they arise with respect to reinsurance for which nontaxed reinsurance premiums were paid) generally are excluded from the insurance company's income.

The provision applies in the case of reinsurance of risks other than life insurance, annuity or noncancellable accident and health insurance risks.

According to William R. Berkley, CEO of the W.R. Berkley, the provision would limit the ability of foreign insurers to move income offshore by ceding premiums on insurance products sold in the U.S. to offshore reinsurance affiliates.

Ceding business offshore gives foreign-owned insurers an advantage because it reduces both underwriting income and investment income on reserves that is subject to taxation. Berkley said the technical language is not as good as that contained in S. 991, introduced in the Senate by Sen. Robert Menendez, D-N.J., and H.R. 2054, introduced in the House by Rep. Richard Neal, D-Mass.

But, in principle, the “language is fine,” Berkley said. “We don't get word choices in this,” Berkley said. “The language is OK, not perfect. We are trying to take a step forward, and this takes a good step forward.”

At the same time, he cautioned, “There is a long way to go. We have been working for 5 years. This is not a Congress that has jumped to enact tax legislation.

“The protectionist tax treatment of US insurers' affiliate reinsurance would limit capacity, putting states such as Florida as risk of being 'underwater' without ready access to international reinsurance markets,” said Bill Newton, executive director of the Florida Consumer Action Network. “By reducing the supply of reinsurance, homeowners, large and small businesses and public sector organizations in Florida and across the U.S. will pay the price.”

The draft language is part of an initiative by the Senate Finance Committee and the House Ways and Means Committee to draft language that would simplify and reform U.S. tax policy.

Berkley said that Rep. David Camp, R-Mich., chairman of the Ways and Means panel, “is supportive of our legislative goal,” but has not signed on to the exact language, which was not made available.

As to the CCIR statement, Berkley said that, “Our Congress would not have enacted legislation that would favor foreign carriers over domestic carriers, as is current tax policy.”

Berkley said the CCIR is merely, “Throwing up smokescreens. It is silly. They get to move reserves offshore, and that is the one of the keys to not paying taxes under the 1986 Tax Reform law.”