.bodytext {float: left; } .floatimg-left-hort { float:left; margin-top:10px; margin-right: 10px; width:300px; clear:left;} .floatimg-left-caption-hort { float:left; margin-bottom:10px; width:300px; margin-right:10px; clear:left;} .floatimg-left-vert { float:left; margin-top:10px; margin-right:15px; width:200px;} .floatimg-left-caption-vert { float:left; margin-right:10px; margin-bottom:10px; font-size: 10px; width:200px;} .floatimg-right-hort { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 300px;} .floatimg-right-caption-hort { float:left; margin-right:10px; margin-bottom:10px; width: 300px; font-size: 10px; } .floatimg-right-vert { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px;} .floatimg-right-caption-vert { float:left; margin-right:10px; margin-bottom:10px; width: 200px; font-size: 10px; } .floatimgright-sidebar { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px; border-top-style: double; border-top-color: black; border-bottom-style: double; border-bottom-color: black;} .floatimgright-sidebar p { line-height: 115%; text-indent: 10px; } .floatimgright-sidebar h4 { font-variant:small-caps; } .pullquote { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 150px; background: url(http://www.dmbusinessdaily.com/DAILY/editorial/extras/closequote.gif) no-repeat bottom right !important ; line-height: 150%; font-size: 125%; border-top: 1px solid; border-bottom: 1px solid;} .floatvidleft { float:left; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} .floatvidright { float:right; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} A coalition of 14 property and casualty insurance companies, including Des Moines-based EMC Insurance Cos., wants Congress to close a loophole it says has allowed other U.S. insurers to legally funnel billions of dollars in premiums to their affiliated offshore reinsurance companies, thus avoiding taxes on that income.

On the other side of the fence, however, is the crop insurance industry, which has a growing stake in reinsurance coverage it receives from offshore companies, particularly Bermuda-based insurers. A number of crop insurance companies, among them Rain & Hail LLC in Johnston and Farmers Mutual Hail Insurance Co. in West Des Moines, obtain reinsurance through Bermuda-based companies, though there’s no evidence that any crop insurers have used affiliated foreign reinsurers to avoid taxes.

According to one estimate, Bermuda insurers and reinsurers now account for nearly 57 percent of total net premiums written in the U.S. crop insurance and reinsurance market.

Ron Herman, assistant vice president and director of tax for EMC, said he’s not aware of any Greater Des Moines-based insurers that are ceding reinsurance to foreign affiliates. The current law has created a looming crisis for all property and casualty insurers, he said. “We believe it’s important not so much for the short-term financial impact, but we view it more as a long-term threat to the entire industry as more and more companies take advantage of this,” he said. “They would have a much lower tax rate, which would give them a better rate of return and make them stronger as compared to us.”

The number of these foreign affiliates and the amount of business they handle has increased substantially. In 1996, $4 billion of premiums collected by U.S. insurers was ceded to foreign affiliates; last year that figure had increased to $32.5 billion, with more than half of that figure attributable to Bermuda companies.

This type of transaction requires “a mere bookkeeping entry to shift revenue from one pocket to another and out of the reach of U.S. taxing authorities,” according to William Berkeley, chairman and CEO of W.R. Berkeley Corp. and a spokesman for the coalition. In testimony to the Senate Finance Committee last month, Berkeley warned senators that the loophole has already caused significant migration of insurance capital abroad.

The coalition said it wants only to curb transactions involving related companies, and that offshore companies reinsuring risks for unaffiliated U.S. insurers would not be affected.

Beth Pellett Levine, a spokeswoman for Sen. Chuck Grassley, the ranking member of the Senate Finance Committee, said his staff is still studying the testimony given to the committee last month. “Nothing has been determined at this point,” she said.

Among the companies cited by the coalition as operating offshore in no-tax jurisdictions but continuing to cover U.S.-based risks are White Mountains Insurance Group Ltd., Everest Re Group Ltd., Arch Capital Group Ltd. and PXRE Group Ltd.

Another Bermuda company, Endurance Specialty Holdings Ltd., is in the process of buying ARMTech Insurance Services Inc. of Lubbock, Texas. ARMTech is the fifth-largest underwriter of federally sponsored crop insurance in the United States.

Steve Rutledge, president and CEO of Farmers Mutual Hail, said the reinsurance placed by the crop insurance industry with Bermuda-based companies is “providing a valuable service for us.” His company does not have any Bermuda ownership ties, he said.

“If (Congress) were to place restrictions on them to make it less attractive to do business, that wouldn’t necessarily be good for us,” Rutledge said. If those companies chose to no longer do business in the United States, it’s uncertain that U.S. insurers would pick up the slack, he said.

Dealing with Bermuda-based companies usually doesn’t mean getting lower rates for reinsurance, because those companies often charge market rates, Rutledge said. Rather, the ease of doing business with a number of reinsurers grouped in Bermuda is probably the biggest advantage, he said.

“None of them are doing anything illegal, of course,” Rutledge said. “None of them would want to jeopardize their tax status. … There are tax advantages to doing business down there, and that’s part of the reason they’re there.”