President Obama’s recently released Budget of the U.S. Government for the Fiscal Year 2013 (the “Proposed 2013 Budget”) would disallow the current deduction for non-taxed reinsurance premiums paid to foreign-affiliates by U.S. insurance companies.  The proposal would (a) deny an insurance company a deduction for reinsurance premiums paid to affiliated foreign companies to the extent that the foreign reinsurer is not subject to U.S. income tax on the premiums received and (b) correspondingly exclude from the insurance company’s income any return premiums, ceding commissions, reinsurance recovered, or other amounts received with respect to reinsurance policies for which a premium deduction is wholly or partially denied.

Similar proposals to disallow the deduction have been put forth in recent years, as we reported here, here, herehere and here.  Also, in October of last year, the House and Senate introduced comparable legislation that would defer tax deductions for U.S. insurance companies that transfer significant amounts of reinsurance-premiums to foreign affiliates, as reported here.  Proponents for the elimination of this deduction assert that the deduction gives foreign reinsurers an unfair tax advantage and consequently creates an incentive for U.S. companies to reinsure domestic risks with foreign affiliates.

The Proposed 2013 Budget and any enacting legislation must still be approved by Congress.  We will continue to monitor this topic and provide updates on