Podcast Center
Video Center
Webcasts
Resource Center
Events
June 01, 2009 at 08:00 PM
Exactly what are they thinking?
That is the question those in the insurance industry are asking as they evaluate counter-attacks to and the potential impact of several revenue-raising proposals affecting the industry that have been unveiled over the last several weeks by the Obama administration.
First, the administration proposed to increase revenue by barring businesses from deducting the cost of financing their offshore subsidiaries unless they repatriated the profits they earned on those subsidiaries at the same time.
The offshore provision will have great impact on all financial firms, including insurers, who finance their overseas business with borrowed money, although it will be hard to measure. 
But it is the second set of proposals that will weigh most heavily on companies and agents.
One of these proposals would effectively end the sale of corporate-owned life insurance–widely believed to be among the industry’s most profitable products. Another would modify the rules that apply to “certain life insurance contracts,” change the dividends-received deduction for certain life insurance company separate accounts and expand the pro-rata interest expense disallowance.
Industry officials acknowledge they anticipated an administration faced with huge budget deficits would certainly seek to raise revenue by increasing taxes on an industry that sells tax-advantaged products. That was a no-brainer.
And, the industry also realized that Treasury Department staffers see COLI as a loophole.
But the timing and scope of these proposals is raising eyebrows.
What jumps out is that while the Obama administration moves to raise almost $13 billion over 10 years from one of the industries most directly impacted by the devastating financial downturn, it is pulling out all the stops to help another one–the banks.
In fact, one of the reasons the life insurance industry is struggling is that the administration is keeping interest rates low to help the banks–even though such a policy is contributing to the life insurance industry’s woes.
One industry argument against wiping out the tax benefits corporate customers gain through purchase of COLI is that it is an indirect attack on inside buildup. It would do so by disallowing a proportionate amount of deductible interest expenses for unrelated borrowing, they argue.
