The Florida Senate Wednesday adopted Sen. Alan Hays’ memorial to Congress opposing a proposed tax on foreign reinsurers, including Bermuda reinsurers who provide significant catastrophe backup to Florida companies. SM 484 was adopted overwhelmingly. A similar resolution (HB 17) is before the House Federal Affairs Subcommittee and could come up next week.

“The Memorial would inform the 112th Congress of the affects Florida could face if a new tax were imposed on foreign reinsurance companies,” notes a March 15 analysis by the Senate Budget Committee. “Florida based property insurance policies are a major purchaser of foreign based reinsurance. Any additional costs imposed on foreign reinsurance companies by Congress will be absorbed to a large degree by Florida homeowners through higher insurance premiums.”

Here are talking points used throughout this debate by Sen. Hays, R-Umatilla:
  • Congressman Richard Neal from Massachusetts and President Obama have proposed a tax on reinsurance premiums
  • The Florida Consumer Action Network, The Heartland Institute and The James Madison Institute have cautioned that such a tax would significantly reduce the amount of available reinsurance to Florida insurance carriers, therefore causing fewer options for Florida consumers and ultimately forcing more and more consumers into Citizens.
  • This is exactly the type of thing we are trying to stop here in Florida.
  • Senate Memorial 484 will send a message to Washington, letting them know that Floridians need to have a stable insurance market and creating this type of tax will hurt the Florida consumer.
  • I urge your support for this measure to tell Washington not to add to the problems we are already experiencing here in Florida.
The Heartland Institute’s Florida office late Wednesday issued a news release praising the Florida Senate for passing the memorial.

“Public policy should encourage Florida to spread its enormous hurricane risk outside its borders. Taxing the ability to do so would have the opposite effect and would pose an enormous risk to the state and its consumers,” said Christian Cámara, director of Heartland’s Florida office.

“This memorial sends a message to Washington that Florida stands united against federally imposed higher insurance rates or any effort to stifle the responsible transfer of risk.”

Here is further background on this issue from the Senate Budget Committee analysis:


Reinsurance is an unregulated insurance product sold to primary insurers to help cover their exposure to excessive loss. As an example, a direct writer of homeowners insurance may purchase reinsurance to cover a specified layer of losses above a certain amount. Reinsurance protects the homeowner and the primary insurance company during major events and disasters.

Proposed Federal Legislation

In recent years Congress has introduced legislation to tax foreign reinsurance companies that sell reinsurance in the United States. In the 111th Congress, H.R. 3424 was introduced calling for a percentage based tax on gross revenues for all foreign based reinsurance companies. House Resolution 3424 and its predecessor in the 110th Congress, H.R. 6969, were both introduced but neither was heard by a House committee.

The sponsor of the bills was Representative Neal of Massachusetts. During his remarks on the House Floor in July of 2009, Representative Neal had argued the tax was necessary to lessen a competitive advantage that foreign based reinsurers had over American based reinsurance companies who were currently subject to the United States tax code. Opponents of the tax have argued foreign based companies are already subject to taxation by their home country and therefore no competitive advantage exists.

The budgets released by the White House for Fiscal Years 2011 and 2012 have also called for a tax on offshore reinsurance companies. In 2011, the tax was estimated to collect $500 million for one year, while the tax revenues estimated in the 2012 budget calls for the collection of $2.6 billion over ten years. While this is less than the estimated $2 billion per year taxed in H.R. 3424, it is important to note any taxes levied will result in Floridians paying the greatest share of the costs that the tax will impose on foreign based reinsurers.

Foreign based reinsurance in Florida

Foreign based companies that sell reinsurance are a vital component to Florida’s property insurance needs. In recent years, a number of large national property insurers have reduced the amount of Florida property risk that they are willing to insure. The gap created by this reduction has been filled to some extent by Florida domestic property insurers which are much smaller and less capitalized than the national companies. In order to manage the risk they assume, Florida domestic companies rely heavily on reinsurance, particularly reinsurance provided by foreign domiciled companies. The Office of Insurance Regulation (OIR) estimates that over 90 percent of Florida’s reinsurance is insured through foreign based sources. Foreign reinsurance has allowed primary insurance companies in Florida to maintain their current level of coverage. If an additional transaction tax is imposed on foreign reinsurers, they will raise their prices to Florida’s direct insurance writers and those price increases will be passed onto Florida’s residents. As a result, Florida’s residents are almost certain to incur a far greater portion of the additional tax burden than any other state.