The bills for the Biden administration's multi-trillion-dollar American Jobs and American Families plans are expected to be based on additional revenue generated by the Made in America tax plan. A headline feature of the plan raises the income tax on the highest-earning American families, the 1.8 percent of households earning more than $ 400,000 a year. Taxes on the remaining 98.2 percent of the middle class and poor American families would not be affected – right? Wrong. A poorly understood feature of the Biden Plan penalizes the global reinsurance industry, which would make real estate insurance more expensive, especially for homes and businesses in Florida, where premiums are already rising sharply. The plan functionally introduces what can be seen as a "hurricane tax:" raising corporate taxes and introducing new rules affect international financial transactions, increasing the cost of reinsurance and negatively affecting primary insurers and homeowners' insurance buyers, especially in disaster-prone areas. . Insurers and their customers should be concerned because homeowners in states like Florida are already seeing interest-rate double-digit premium increases.
The main way that the Made in America tax plan affects global reinsurance is through its proposed replacement of base erosion and counter-abuse (BEAT) by stopping harmful inversions and ending the development of low tax (SHIELD). BEAT, a provision in the 201
BEAT failed to meet its expected revenue targets because rather than being subject to BEAT's 10% tax, insurers responded in two ways: the reduced sessions to affiliated offshore entities while increasing the sessions to non-affiliated reinsurance companies; and they increased their retentions in the United States.
The chart below shows that in 2018, the first year that BEAT came into force, sessions to affiliated offshore reinsurance companies decreased while sessions to unrelated insurance companies increased.
( Source: Reinsurance Association of America, Offshore Reinsurance in the US Market, 2018 data.)
2018 also saw an increase in the premium ratio net to direct for real estate. and the accident industry, indicating that insurers retained more risk in the United States than in foreign jurisdictions, as shown in the chart below. The net ratio rose from just under 87 percent in 2016 and 2017 to over 91 percent in 2018. The combination of these two answers made it possible for American insurance companies to beat BEAT.
( Source: S&P Global Intelligence)
Made in America Tax Plan replaces BEAT with SHIELD, which introduces a global minimum tax rate. The originally proposed SHIELD interest rate of 21 percent was reduced to 15 percent at the end of May. SHIELD is intended as a more powerful way to move profits to low-tax jurisdictions. In addition, it would seek to encourage other countries to adopt higher minimum corporate taxes. Such a policy can create an obstacle to prevent companies from "inverting", whereby a US company merges with a foreign company to lower its effective tax rate. Burger King and Coca-Cola are examples of inverted companies.
The introduction of a global minimum tax is expected to have negative effects on all multinational companies, including global reinsurance companies. Adverse effects on reinsurance companies will lead to higher reinsurance levels, which will be transferred to primary insurance companies and insurers for reasons unrelated to loss. There are many unknowns around SHIELD, whose contours and numbers require clarification. The implementation of SHIELD requires not only the approval of the US Congress but also an international agreement insofar as a global minimum tax would be introduced. Clarification of details related to SHIELD and other provisions in the Made in America Tax Plan that may affect global reinsurance were expected to be provided in the Ministry of Finance's "Green Book", which provides explanations for the administration's revenue proposal. The latest green book, released on May 28, is not entirely clear on how SHIELD would work. Since reinsurance is by nature a global business and SHIELD's goals are multinational companies, insurers must pay close attention to the plan and push back where appropriate, so that they will not be able to absorb additional onerous taxes that they will need to transfer to [19659002FloridaImpact
Florida policyholders already pay the highest interest rates in the country for homeowners insurance. The premium for homeowners insurance from the top 25 Florida homeowners insurance companies averages $ 1,774. Prices rise from factors unrelated to changing reinsurance costs. For example, the Florida Office of Insurance Regulation (FLOIR) approved two condominium increases in 2020 – an interest rate increase of 12.4 percent that applied in May and a further 7.0 percent in December. If they are representative, these prices would lead to an average Florida homeowner at $ 2134. Reinsurance accounts for a significant portion of Florida homeowners' premiums – about one-third. Should the Biden Plan be implemented, its SHIELD-related provisions will cause reinsurers to raise insurance company prices, which in turn will pass on the increase to homeowners, making Florida insurance costs unreasonable, exacerbating the already close crisis conditions in Florida's insurance market. So make no mistake about it – Biden's tax plan will beat middle- and lower-class Americans in the pocketbook. In the interests of Florida and their insurers, we should oppose the tax plan for Biden Made in America.
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