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ACLI Seeks Study On Federal Backup For Life Insurers' Terrorist Losses

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ACLI Seeks Study On Federal Backup For Life Insurers’ Terrorist Losses



The American Council of Life Insurers will ask Congress to commission a study on whether there is a need to establish a federal backup for life insurance losses caused by terrorism and on the feasibility of a federal program.

ACLI Representative Herb Perone says the Washington-based Council will try to attach language establishing the study to whatever legislation moves through Congress regarding terrorism and the property-casualty industry.

Perone emphasizes that ACLI is not asking for any government assistance. He characterizes an Oct. 18 article in the New York Times suggesting ACLI is seeking government assistance as “dead wrong.”

Life insurers, he says, will have no problem absorbing the losses arising from the Sept. 11 terrorist tragedy.

Moreover, Perone says, ACLI is “absolutely neutral” on the notion of creating a government reinsurance pool or other facility for terrorism losses.

ACLI understands the extreme importance of this issue to the property-casualty industry, he says, noting that life insurance industry losses from the Sept. 11 tragedy are a small fraction of those faced by p-c insurers.

What ACLI is seeking, Perone says, is something more academic and theoretical–a commission to look at worst-case scenarios and when, if ever, it would be appropriate for the life insurance industry to seek assistance from the government.

Perone emphasizes that the entire economy is in “uncharted territory.” While life insurers feel no compelling need to be part of any pool, he says, it would be irresponsible not to sit down with people from government to analyze possible scenarios.

The industry, he says, is doing what it should do for its policyholders, which is to manage risk and prepare for the unexpected.

Specifically, the ACLI plan contemplates a nine-member commission, comprised as follows: two from the Treasury Department, one from the Commerce Department, one from the Office of Homeland Security, one from the National Association of Insurance Commissioners, two from the primary insurance industry and two from the reinsurance industry.

Currently, the discussion over a federal role in terrorism insurance focuses on the p-c industry, whose consensus plan to create a private, state-chartered reinsurance pool backed up by the Treasury Department appears to be dead.

Instead, the Bush administration is proposing a three-year direct loss sharing arrangement in which the federal government would pay up to 90% of losses following a terrorism event.

Details of the proposal are still being developed. A hearing on the proposal was scheduled for Oct. 18, but was postponed indefinitely due to the anthrax scare that shut down much of the Capitol complex.

Also delayed indefinitely was work on the economic stimulus plan, H.R. 3090, approved recently by the House Ways and Means Committee by a 23-14 vote.

The legislation, which is supported by President Bush, contains several industry-related provisions.

In particular, H.R. 3090 contains a permanent extension of the current treatment of investment income earned by foreign subsidiaries of U.S. financial services firms under Subpart F of the tax code.

Jeanne Hoenicke, senior vice president with ACLI, notes that life insurers have been seeking a permanent extension since the 1990s.

“This legislation ensures that our tax code does not penalize life insurers and financial services firms operating abroad,” she says.

A permanent extension means the investment income at issue will not be subject to U.S. taxation until the parent receives it. Without an extension, the income will be immediately taxable when it is earned by the subsidiary.

In addition to the permanent extension, the committee adopted language allowing insurance companies to request a ruling from the Internal Revenue Service seeking an adjustment in the calculation of the reserve deduction for the affected investment income.

Specifically, life insurers want to be able to use the reserve calculation method required by the foreign country in which they are doing business.

Life insurers say that without this ability, they cannot deduct similar levels of reserves as foreign-based companies and cannot effectively compete for business.

However, H.R. 3090 did not contain two other provisions sought by ACLI. These include repeal of Sections 809 and 815 of the tax code and repeal of the current restrictions on consolidated returns.

ACLI representative Jack Dolan says ACLI will work to repeal these provisions in the Senate.

David Winston, vice president of government affairs for the National Association of Insurance and Financial Advisors, praises H.R. 3090 for containing provisions easing the tax burden on small businesses.

This is important, he says, for NAIFA members who own their own agencies.

Among the small business provisions in H.R. 3090 are repeal of the corporate alternative minimum tax and liberalizing certain deductions involving leased property.

Reproduced from National Underwriter Life & Health/Financial Services Edition, October 22, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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