Congress is considering legislation that would impose a significant tax on reinsurance that a foreign-owned U.S. insurance firm buys from an offshore affiliate. The legislation is a response to pressure from some U.S.-owned insurance groups that portray offshore affiliate reinsurance as a tax-avoidance strategy. These groups argue that the tax is necessary to level the playing field and will not harm U.S. consumers. A coalition of insurance firms opposed to the legislation asked us to evaluate the economic impact of the tax. We summarize our conclusions below.

Reinsurance is critical to risk management in the property and casualty (P&C) insurance industry, particularly for natural catastrophes and other infrequent but high-loss events.

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The Impact on the U.S. Insurance Market of a Tax on Offshore Affiliate Reinsurance: An Economic Analysis