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.
The Impact of a Border-Adjustment Tax on the U.S. Insurance Market
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