Related-party reinsurance transactions can provide certain tax advantages to offshore-based insurers and their U.S. affiliates. When U.S. risks are transferred to the offshore entity, the U.S. affiliate can generally deduct the premiums ceded from its federal income tax, and the offshore entity pays no U.S. tax on the ceded premiums. Additionally, if the offshore entity is headquartered in a low-tax or no-tax country, the entity could pay little or no tax on the investment income from the ceded premiums. U.S.-based insurers have argued that these tax laws place them at a competitive disadvantage.

On September 18, 2008, Richard Neal (D-MA), Chairman of the Subcommittee on Select Revenue Measures, introduced H.R. 6969. This legislation would amend the U.S. Tax Code to disallow deduction by a company subject to Section 831 of the Code of a certain excess amount of affiliated, non-taxed reinsurance premiums. Based upon aggregate data from company annual statements, the excess amount would be determined by line of business by reference to an industry average of premiums ceded to unrelated parties. H.R. 6969 was referred to the House Committee on Ways and Means.

On December 10, 2008, the Senate Finance Committee staff released a discussion draft of a bill that is nearly identical to the legislation introduced by Neal. The staff invited public comments until February 28, 2009, on issues such as the possible effect on insurance pricing and capacity, existing treaties and sovereignty rights, and the impact on the reinsurance market. A European insurance association has responded that such legislation would increase the price of insurance, violate double taxation treaties, and reduce reinsurance capacity. Neal plans to reintroduce this bill in the current session of Congress.