Sponsors (3)
The bill lowers taxes and provides certainty for insurers and foreign investors—making it easier and cheaper to move and raise reinsurance capital—while shifting tax revenue and fiscal power away from states/localities and creating risks of tax base erosion and additional compliance burden.
Insurers and catastrophic-risk transfer companies selling reinsurance across state lines face lower or capped premium-tax costs (federal caps: 4¢/$ for casualty, 1¢/$ for life/annuity/reinsurance), reducing their operating costs and providing greater pricing certainty for the industry.
Foreign investors (nonresident aliens and foreign corporations) receiving qualifying dividends from catastrophic-risk transfer companies can get those investment-income–linked dividend portions tax-free in the U.S., enabling tax-free distributions and improving capital raising and liquidity for insurers and reinsurance vehicles.
Companies and reinsurers gain federal tax-rate certainty and simplified compliance because the bill caps non‑formation‑state taxes and relies on existing Internal Revenue Code definitions, reducing legal uncertainty and administrative complexity.
U.S. federal tax revenue may decline because dividends paid to many foreign investors are exempt, potentially increasing budget deficits or shifting tax burdens onto U.S. taxpayers.
State and local governments (outside formation States) could lose significant premium-tax revenue from reinsurance business, shrinking local tax bases and potentially forcing cuts to local services or higher taxes elsewhere.
The exemptions create incentives for profit‑shifting or routing investments through catastrophic‑risk entities to avoid U.S. tax unless anti‑abuse rules are effective, raising risks of base erosion and aggressive tax planning.
Based on analysis of 3 sections of legislative text.
Creates a tax-exempt dividend category for qualifying "catastrophic risk transfer companies" and caps state premium taxes on reinsurance paid to those companies at specified rates.
Official title: To amend the Internal Revenue Code of 1986 to establish a system for the taxation of catastrophic risk transfer companies to ensure sufficient capital to cover catastrophic insurance losses, and for other purposes.
Introduced February 21, 2025 by Darin Lahood · Last progress February 21, 2025
Creates a new federal tax treatment and state tax limit for designated "catastrophic risk transfer companies" (a new IRS-defined entity). It exempts certain dividends that those companies pay (so foreign and domestic investors can receive tax-preferred "qualified investment income dividends") subject to reporting and specific anti-abuse exceptions, and it prevents most states and localities from imposing premium taxes on reinsurance premiums paid to these companies beyond a fixed cap tied to existing federal rates for foreign insurers. The bill therefore provides a federal tax carve-out to encourage formation or investment in these specialized reinsurance-like companies and preempts much state premium taxation, while adding reporting and withholding rules and narrow exceptions to the dividend exemption for related-party debt and ownership situations.