H.R. 1481: Catastrophic Risk Transfer Act of 2025

This bill, titled the Catastrophic Risk Transfer Act of 2025, aims to establish a taxation system specifically for catastrophic risk transfer companies. Here is an overview of the key components and implications of the proposed legislation:

Definition of Catastrophic Risk Transfer Companies

A catastrophic risk transfer company is defined as a domestic corporation that:

• Is organized under the laws of a state that allows for such companies.
• Is licensed and regulated as a special purpose insurer.
• Primarily engages in activities related to catastrophic risk transfer, which include issuing securities, owning qualified investments, and entering into insurance or reinsurance agreements for catastrophic risks.

Tax Provisions

The bill introduces a number of tax provisions related to these companies:

• Catastrophic risk transfer companies must elect to be classified as such and meet certain requirements on income derived from investments and reinsurance premiums.
• At least 90% of their gross income must come from investment income or reinsurance premiums, with specific limitations on the type of insurance provided.
• Companies must also ensure that the insurance or reinsurance offered is fully collateralized.

Requirements for Taxation

The taxation of catastrophic risk transfer companies is contingent upon meeting requirements including:

• A deduction for dividends paid must equal or exceed 90% of taxable income for the year.
• Companies can face taxes on any income that does not meet the stipulated requirements.

Disclosure Requirements

Companies must disclose specific information regarding the types of income that their dividends are based on, including:

• Interest and tax-exempt interest.
• Qualified dividend income and other capital gains.
• Insurance or reinsurance premiums.

Exemption from Foreign Taxes

The bill proposes exemptions for nonresident aliens and foreign corporations from taxation on certain dividends received from catastrophic risk transfer companies, provided these companies meet established qualifications.

State Taxation on Reinsurance Premiums

To prevent double taxation, the bill states that other taxing jurisdictions cannot impose premium tax on reinsurance premiums paid to catastrophic risk transfer companies. If such a tax is imposed, it cannot be higher than the tax applicable to premiums paid to foreign reinsurers.

Implications for Companies

Overall, this bill is designed to manage and tax catastrophic risk transfer companies in a way that ensures they are able to cover potential catastrophic insurance losses while adhering to stringent taxation and regulation requirements.

Relevant Companies

• AIG - American International Group, known for property and casualty insurance which could be affected by new regulatory frameworks regarding catastrophic risks.
• ProAssurance Corporation - Offers professional liability insurance and may adapt its business models in response to the tax implications and regulatory requirements for catastrophic risk transfer company status.
• Everest Re Group, Ltd. - A global reinsurance and insurance provider that could be significantly influenced by the changes in the taxation structure for risk transfer activities outlined in the bill.