Many members of the US Congress in catastrophe-prone states oppose President Barack Obama’s plan to raise the US tax burden on foreign reinsurance companies — so it could be years until the issue is resolved.

That is the view of Robert DeRose, an analyst with credit ratings agency AM Best.

In Mr Obama’s budget proposal, published earlier this month, the US President once again proposed to increase taxes on reinsurance transactions involving non-US reinsurers and their US insurance subsidiaries.

Such a move would potentially affect several companies in the Bermuda market, such as Arch Capital and XL Group.

However, in a briefing on the proposal, AM Best said: “Although this issue warrants ongoing surveillance, AM Best does not believe it will lead to rating revisions over the near term.

“Depending on the final outcome, companies likely will seek operating alternatives to ensure capital efficiency if, and when, the tax benefits for non-US companies are eliminated.”

Mr DeRose added: “The current administration has tried unsuccessfully to eliminate this tax benefit in previous budget proposals. Opposition on this issue comes from many members of Congress, particularly for states that have considerable exposure to natural catastrophes. Their concern is that a tax increase could lead to increased costs for (re)insurance coverage or possibly a decrease in allocated (re)insurance capacity for less profitable risks. Accordingly, any resolution of this issue could be years away.”

The briefing adds that other strong opponents of the bill include insurance regulators in the most exposed states such as Florida, Mississippi, Louisiana and the Carolinas.

“The United States accounts for more than 70 per cent of global cat risk, and foreign insurers and reinsurers absorb approximately 50 per cent of the total losses on US cat events,” the agency added.