WASHINGTON BUREAU — Life insurers are asking members of the Senate Finance Committee to kill a proposed tax on large insurers that own broker-dealers.
Patrick Baird, chairman of Aegon USA Inc., Cedar Rapids, Iowa, and immediate past chairman of the American Council of Life Insurers, Washington, is preparing to talk about ACLI members’ objections to the proposal Tuesday during a financial institutions fee hearing organized by the Senate Finance Committee.
Obama administration officials have included the “financial responsibility fee” tax in the fiscal year 2011 budget proposal. If implemented as written, the tax would apply to insurers with more than $50 billion in total assets, and an insurer subject to the tax would pay an amount equal to 0.15% of the value of specific types of liabilities.
The tax also would apply to banks, thrifts, bank holding companies, thrift holding companies, brokers and securities dealers, and to companies that owned or controlled those types of entities on Jan. 14, 2010.
Although some insurers may own a bank, thrift or broker-dealer, these are generally “small parts of their business operations,” Baird says in a written version of his testimony. “Life insurers engaged in the variable annuity or variable life insurance business often own a broker-dealer to facilitate the distribution of these contracts, and some life insurers own thrifts to carry out trust services.”
Analysts at the Joint Committee on Taxation have concluded that the life insurers that pay the tax “will be at a competitive disadvantage in their sector of financial services as a result,” Baird says.
The Senate is proposing to impose the large financial institutions tax on all institutions with more than $50 billion in assets, regardless of the size of the institutions’ bank, thrift or broker-dealer units, Baird says.
“Because their reserves and statutory surpluses can be very large, a significant number of life insurers — not only publicly traded companies, but mutuals, fraternals, and reciprocals — would be swept into the tax,” Baird says.
Administration officials have told insurers that insurers are included in the proposed tax because of the role American International Group Inc., New York (NYSE:AIG), played in the financial crisis, and because officials want to discourage speculative use of leverage, Baird says.
Although AIG is known for its insurance operations, the company also is “a multi-faceted entity with many business units in addition to its insurance business,” Baird says. “AIG should not be used as the benchmark for the life insurance industry.”
Because state law prohibits insurers from engaging in risky leveraging, “we do not believe this is justification to impose a tax on our industry,” Baird adds.
Baird acknowledges in his testimony that life insurers other than AIG received Troubled Asset Relief Program funds in 2009.
But, “in fact, these companies have either repaid or will have repaid well in advance of the 2013 statutory date,” Baird says.