President Barack Obama’s recently released Budget of the U.S. Government for the Fiscal Year 2012 (the “Proposed 2012 Budget”) would disallow the deduction U.S. cedents are currently permitted to take for “excess non-taxed” reinsurance premiums paid to their foreign affiliates.  The Proposed 2012 Budget provides no further detail regarding the proposed disallowance, but projects that the disallowance would reduce the U.S. deficit by over $2.6 billion by 2021.

Similar proposals to disallow this deduction have been presented in recent years, as we reported here, here, here and here.  Proponents for the elimination of this deduction contend that the deduction grants offshore reinsurers an unfair tax advantage, resulting in the migration of capital abroad.  Those in favor of the deduction argue that disallowing the deduction is akin to a protectionist tariff and suggest that eliminating the deduction could reduce America’s ability to manage risk.

The Proposed 2012 Budget and any enacting legislation must still be approved by Congress.  We will continue to monitor this topic and provide updates on InsureReinsure.com.