The Washington DC office of the Heartland Institute think tank yesterday [Mar.13] hosted a major symposium on “onshoring” catastrophe reinsurance reserves now held in off-shore business domiciles including Bermuda.
The Illinois-based Heartland Institute has been part of ongoing efforts to transform the District of Columbia into “Bermuda On The Potomac” — an onshore domicile for leading American re/insurers.
“In the past decade, tornadoes, hurricanes, floods, wildfires, and other major natural disasters have done record amounts of damage in all regions of the country,” said the Heartland Institute in a statement issued this week. “To assure they can pay claims following these disasters, insurers and reinsurers must maintain ‘catastrophe reserves’.”
“Because of the way US law treats these reserves, nearly all of them are currently located in offshore jurisdictions like Bermuda, the United Kingdom, Switzerland and Germany.”
The District of Columbia’s Congresswoman Eleanor Holmes Norton has proposed a bill that would encourage companies to keep these reserves in Washington, transforming the US capital into what’s been described as “Bermuda on the Potomac.”
The Heartland Institute has in the past consulted for both the Association of Bermuda Insurers and Reinsurers [ABIR] and a subsidiary of Hamilton-based Renaissance Re.
Panellists at yesterday’s symposium were:
- Rep. Eleanor Holmes Norton (Democrat,DC)
- Rep. David Rivera (Republican, Florida)
- Lawrence Mirel, Former Commissioner of Insurance, Securities and Banking, District of Columbia
- Matt Wulf, Vice President, State Relations, Reinsurance Association of America
- Eli Lehrer, Vice President, The Heartland Institute
Rep. Norton’s legislation would see the District of Columbia become a domestic tax haven for if her recently proposed legislation is passed by the US Congress.
The bill would designate the US capital as a special jurisdiction where reserves and related investments from insurers and reinsurers could be set aside free of federal taxes.
A rough year in the United States for natural catastrophes makes the District of Columbia National Disaster Insurance Protection Act particularly timely, Rep. Norton said in a statement when she introduced the legislation last October.
“Retaining funds here in the US would fuel both the local and US economies, would provide the protection of US laws for individuals and businesses with property and casualty insurance and would protect US taxpayers, who would otherwise likely have to pick up the tab if there were a failure in reserve fund availability,” she said.
Congress’ ultimate control of district affairs is usually a sore point for local officials. However, in this case, it could bring a new advantage, said Lawrence Mirel, a former commissioner of the district’s Department of Insurance, Securities & Banking who worked on the legislation.
The bill requires companies with reserves held in the district to maintain a physical office. The district government could also impose an excise fee — as non-US jurisdictions do.
“The best way to look at it is to look at what it did for Bermuda,” said Mr. Mirel, a lawyer with Wiley Rein LLP.
Limiting the tax deductibility of reinsurance premiums paid by US-based, foreign-owned insurers to non-US-based affiliates has been a recurrent issue in Washington.
Proposals to address what many see as a tax disparity that benefits non-US-owned companies, many of them based in Bermuda, has resurfaced recently in both a bill introduced by Massachusetts Congressman Richard Neal and in Obama administration budget proposal.
The Norton measure is a welcome fresh take, said R.J. Lehmann, deputy director of the Heartland Institute’s Centre on Finance, Insurance, and Real Estate.
“While further investigation is warranted into how the DC catastrophe reserve accounts would interact with the tax code, with state and international regulation and with accounting rules, we think this approach offers great promise for fostering a property insurance system that is both affordable and risk-based,” Mr. Lehmann said.
While Rep. Norton is the ranking Democrat on the House Subcommittee on Economic Development, Public Buildings, and Emergency Management, she is a nonvoting member of the minority party. She introduced a similar and unsuccessful measure in 2010.
Given the prevalence of catastrophes in 2011, however, Mr. Mirel is optimistic the new bill will attract Republican support. “We can’t do this with just her. We need to attract some other lawmakers,” he said.
In 2010 Washington DC’s chief financial officer Natwar Gandhi first proposed transforming the perpetually cash-strapped American capital into an on-shore business domicile — saying the city had the potential to become “Bermuda on the Potomac.”
“Natwar Gandhi [suggests bringing] in dollars from rich corporations, namely banks and insurance companies who currently park millions of dollars abroad in island tax havens,” reported “Washington Herald” columnist Herbert Jaffe last year. “Gandhi wants to change federal tax laws and make DC ‘Bermuda on the Potomac’.
“Sounds reasonable. ‘The financial centre of the country is in Washington now’, Gandhi tells me. ‘All the trading can be done in New York, but the decisions are made here’ …”
“So why not make the capital into an on-shore tax haven, asked Mr. Jaffe? Why not lure all of those Bermuda-based insurance companies and their millions back on-shore by turning the District of Columbia into a corporate-friendly zone?
“Having no vote in the House or the Senate, DC is at the mercy of our suburban neighbours,” he said by way of answering his own question.
“Every time DC floats a tax haven idea, politicians from Maryland and Virginia see it as giving the central city a competitive advantage. ‘It’s an idea we have explored in the past’, council finance chair Jack Evans says. “Maybe it’s time to do it again. I’m all for it’.”