Pertinent Perils

Massachusetts Congressman Richard Neal would like to impose taxes on foreign reinsurance companies and that means scarcer and more expensive risk capital for small businesses. Reinsurance companies are the ultimate providers of risk capital as they back-stop the risks of primary insurance companies. Consider what happens when a hurricane strikes Florida, for example, causing $10 billion in insured losses. The insurance company likely has reinsurance protection in place to spread the risk, thereby increasing capacity and lowering costs. If the insurer had to bear the losses itself, it would have less risk capital to underwrite policies. Imposing a special tax on reinsurance raises its cost, making insurance less affordable to small businesses. Any reduction in reinsurance capacity increases the vulnerability of communities particularly prone to catastrophic risks, such as coastal communities and large cities. Foreign reinsurance providers are of particular concern to the small business community as they provide two-thirds of the reinsurance coverage purchased by U.S. property-casualty insurance companies. We rely on foreign capital to make our economy hum. Imposing a discriminatory tax on reinsurers is counterproductive for the U.S. economy and its small businesses.