The Risk and Insurance Management Society (RIMS) has opposed moves to remove a tax deduction for US reinsurers that cede premiums to their foreign affiliates.

It says Senator Max Baucus’ proposal will reduce capacity and increase premiums.

The reform’s supporters argue the current system creates a legal loophole that favours foreign-controlled insurers by allowing them to avoid paying US tax.

The Coalition for a Domestic Insurance Industry, representing 13 US-based insurers, says the tax deduction penalises local insurers.

But RIMS President John Phelps says it allows US insurers to manage their risk and fosters a healthy, competitive reinsurance market.

“This practice is widely used by the industry generally and the property and casualty industry specifically, and [is] considered an efficient mechanism to pool risks, diversify exposures, reduce the volatility of losses and, as a result, enhance availability of coverage and reduce prices for consumers.”

He says following events such as the September 11 2001 terrorist attacks, foreign reinsurers stepped in when domestic insurers cut coverage or significantly increased rates.