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Politics

Rep. Jeff Brandes Rejects Neal Bill Increasing Reinsurance Taxes

February 14, 2011 - 6:00pm

State Rep. Jeff Brandes, R-St. Petersburg, announced at a media event Tuesday that he has introduced a memorial in the Florida House opposing a bill from U.S. Rep. Richard Neal, D-Mass., raising taxes on reinsurance premiums.

Joined by leaders of organizations that support free-market solutions, including the Heartland Institute and the James Madison Institute, Brandes warned that the Neal bill, parts of which have been incorporated into the FY 2012 budget proposal unveiled Monday by President Barack Obama, would have a serious and detrimental impact on the Sunshine State.

The Neal proposal caps reinsurance premiums paid by domestic companies to international companies. Supporters of the Neal measure insist that it will close tax loopholes.

What is reinsurance? It is a safety net. Insurance companies buy "reinsurance" from other insurance companies to cut down on risk.

A study of 2009 third-party reinsurance assumption of Florida home insurance, conducted by Dowling & Partners Securities, found that only 9 percent of the reinsurance comes from American companies, with the bulk of it -- 62 percent of the total market -- coming from Bermuda-based companies.
Brandes maintains that increasing taxes on these companies will impact all Floridians.

Overseas insurers U.S. affiliates provide 11 percent of home insurance and 40 percent of business property insurance in Florida, said Brandes. Should Congress impose the Neal bill, Floridians will ultimately be left with fewer insurance options, forcing more business to flow into the states largest insurance provider state-run Citizens Property Insurance Corp.

Calling Neals proposal very bad news for Florida and likening it to a protective tariff, Eli Lehrer, a vice president of the Heartland Institute, said he did not expect the bill to get an up or down vote in Congress, but suspected it would be piggybacked on another measure.

This tax is nothing but an attack against Florida families and Florida businesses, insisted Lehrer.

Bob McClure, the president and CEO of the James Madison Institute, warned that the Neal measure would lead to dramatic increases for consumers across the Sunshine State.

This proposed tax would increase the cost of insurance 16 percent of some lines of business, said McClure. Reinsurance companies will pass down the costs to insurance companies who will pass down the costs to consumers.

Consumer groups across the Sunshine State stated their opposition to Neals proposal and urged the Legislature to pass the memorial introduced by Brandes in the House and Sen. Alan Hays, R-Umatilla, in the Senate.

The Neal bill will reduce the supply of capital available to insurers, which will lead to higher costs and push consumer premiums up by nearly $12 billion per year, said Steve Pociask, president of the American Consumer Institute Center for Citizen Research. Equally concerning is that reducing industry capital means that insurers will edge closer toward insolvency by drawing down policyholder surplus and reducing the capital available to pay consumers for their insurance claims. The combination of higher prices and greater risks means that consumers ultimately lose -- effectively paying more for less. Based on our research, such legislation would be very bad news for consumers.

Florida Consumer Action Network (FCAN) also opposed the Neal bill.

FCAN opposes the Neal bill because it will raise insurance rates for Floridians and interfere in a competitive international market, noted Bill Newton, the executive director of FCAN. This bill only benefits a few U.S. reinsurers who dont want to compete in the international market. Floridians benefit when risk is spread as widely as possible and that means international reinsurance.

Working on the Senate Banking and Insurance Committee, and as a legislator that has tirelessly worked to stabilize the states insurance market, I encourage my fellow senators to approve this measure in an effort to send a message to Washington, said Hays. It is our job to protect our constituents from the Neal bill which in fact is a burden on the backs of hard-working families and businesses throughout our state.

Reach Kevin Derby at kderby@sunshinestatenews.com or at (850) 727-0859.

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