Tax increases could follow for non-US based insurers
The Barack Obama presidency and a strengthened Democratic party in Congress could lead to tax increases for offshore insurers.
During the campaign, Obama frequently mentioned the theme of closing corporate tax loopholes and ensuring that companies pay their fair share. The Obama campaign ran a TV ad that said: "McCain went to Bermuda, and while he was there pledged to protect tax breaks for American corporations that hide their profits offshore."
In addition, the US government is running the largest deficit since World War II, which will incentivise it to increase tax revenues.
As well as offshore insurance, private equity funds could be hit.
In September, House legislation was introduced by Rep. Richard Neal. The Neal bill is backed by a coalition of U.S.-based insurers including the W.R. Berkeley Corp., the Chubb Corp, and the Travelers Companies.
Those companies claim that foreign-based insurers, such as ACE and XL Capital, avoid taxes on their U.S. business by reinsuring policies written in the U.S. to Bermuda-based affiliates.
"No one wants to impinge upon the free movement of capital. But we don't want people to use the guise of risk-spreading to avoid tax," said William R. Berkeley, Chairman and CEO of W.R. Berkely Corp, a quoted by Dow Jones.
Bradley Kading, President of the Association of Bermuda Insurers and Reinsurers, said the organisation's members do pay tax on their U.S. business. They pay a U.S. federal excise tax on the reinsurance transactions, and they pay tax on "ceding commissions" to the U.S. affiliate for reimbursement of expenses.
"This is nothing but a grab for market share by the U.S. companies," said Kading.