Summary
Tax-deferred catastrophe reserves for insurers in the US is an idea that has been around for more than a decade. Under such a plan, the federal government would allow insurance companies to stash away tax-deductible money up to established limits. Should a catastrophe occur, the company would liquidate the reserve, and the amount would count as taxable income. Lawrence Mirel, formerly insurance commissioner in the District of Columbia, argues that tax-deferred reserves would not only improve the industry's capacity, but would actually bring more tax revenues into the US. The reason is that most of the reinsurance that backs up risk in the US is provided by companies that are offshore. The Reinsurance Association of America has no specific position on the current bills or tax-deductible reserves in general. But the association has some guiding principles. One is that the trigger point should be high enough to allow the private reinsurance market to develop and operate underneath.
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Extract
Panacea or Boondoggle?
Tax-deferred catastrophe reserves for insurers in the United States is an idea that has been around for more than a decade. But with the perceived risks of more Katrina-like mega-disasters, many parties are giving the old idea another look. One report is that a working group of insurance commissioners has initiated "highlevel" talks with the U.S. Treasury Department.
The reserves would work somewhat like an Individual Retirement Account, except that companies would be saving for natural catastrophes rather than retirement. Under such a plan, the federal government would allow insurance companies to stash away tax-deductib...See the full content of this document
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