November 17, 2017

Brattle Economists Study Impact of Reinsurance Taxes on the U.S. Insurance Market

A new study co-authored by Brattle economists examines the impact that a Border Adjustment Tax (BAT) could have on the U.S. insurance market. The report builds on prior Brattle analyses from a January 2017 report that focused on the Neal/Warner Bill tax proposal. The new study reaffirms the importance of U.S. catastrophe insurance and reinsurance and discusses potential negative outcomes for the U.S. catastrophe insurance industry and its policyholders as a result of the BAT. Additionally, the study find that the BAT would result in a widened protection gap between insured and uninsured losses and that the potential burden would fall on the U.S. government.

Although the BAT has dropped from the political radar, both the House and Senate Tax Reform bills include excise taxes on cross border affiliate transactions. According to the authors, the Excise Tax proposals now being actively debated in Congress would likely have a consumer price impact in between the original Neal/Warner Bill tax proposal ($5 billion) and that of a BAT, which could have been higher than $20 billion.

In a separate article published in Tax Notes, the authors recently described that affiliate reinsurance is critical to providing reinsurance capacity to the U.S, and the need for capital in the insurance sector has been heightened by the spate of natural disasters in the U.S. this year.

The study was authored by Brattle Principals Michael Cragg and Bin Zhou, Senior Associate Jehan deFonseka, and Lawrence Powell of The University of Alabama. It was prepared for the Coalition for Competitive Insurance Rates and funded by the Association of Bermuda Insurers and Reinsurers (ABIR), and can be downloaded using the link below.

Associated Experts
Principal & Chairman
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Dr. Cragg has extensive consulting, research, and expert witness experience in corporate finance, financial services, and valuation. More icon f02782c24cccaf6d90e1da53920c42f20e5a8955f54ac2ca5727ec7dc89987b4
Zhou 082
Dr. Zhou is a valuation, corporate finance, and accounting expert with more than 15 years of consulting experience. More icon f02782c24cccaf6d90e1da53920c42f20e5a8955f54ac2ca5727ec7dc89987b4
Defonseka 041
Senior Associate
Jehan deFonseka specializes in leading teams in complex business litigation. More icon f02782c24cccaf6d90e1da53920c42f20e5a8955f54ac2ca5727ec7dc89987b4