A new bill which has been introduced this week seeks to make the District of Columbia into an international financial center for catastrophic insurance reserves to rival the likes of Bermuda and the Cayman Islands. Congresswoman Eleanor Holmes Norton has introduced the District of Columbia National Disaster Insurance Protection Act this week.
If the bill succeeds in the long road through the legislative houses it will set regulation in place to allow D.C. to encourage insurers to house their catastrophe reserves, set aside to cover losses from natural disasters, in the District. The bill would change tax laws to make catastrophe insurance reserves and the investment income earned from them exempt from federal taxation. Currently much of these reserves are held in offshore financial centres such as Bermuda due to the high taxes paid on them in the U.S.
“My bill is particularly timely considering the earthquakes and hurricane that caused billions of dollars in damages this summer, and the record number of natural disasters throughout the U.S. this year,” said Norton. “Retaining funds here in the U.S. would fuel both the local and U.S. economies, would provide the protection of U.S. laws for individuals and businesses with property and casualty insurance and would protect U.S. taxpayers, who would otherwise likely have to pick up the tab if there were a failure in reserve fund availability.”
Norton’s argument is that by bringing catastrophe reserves onshore it will force companies to have offices in D.C. and all the associated lega, actuarial and consulting firms would also move to the District, increasing revenue locally.
Even if the bill is successful it is by no means certain that insurers and reinsurers would move their reserves to D.C. from the offshore domiciles where they have operated in recent years. The offshore domiciles have taxation benefits, and many re/insurers have their whole operation domiciled there. In order for reserves to move, the taxation benefits for the re/insurers would have to be significant.
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