A House subcommittee today is pondering a bill that, at first blush, looks like an arcane, industry-specific tax tweak. But it could have big implications — none of them good — for companies’ property and casualty insurance costs.

Rep. Richard Neal (D-Ma) wants to close what he considers a “tax loophole” that allows foreign-owned insurance companies to deduct all of the reinsurance premiums they pay to their affiliates based outside the United States.

“The benefits of being headquartered in a tax haven can be quite significant for a company with investment income over long periods of time,” Neal notes in a statement introducing the bill. “Use of affiliate reinsurance allows foreign-based companies to shift their U.S. reserves and their investment income overseas into tax havens, thereby avoiding U.S. tax.”

The insurance industry is split over the issue, with domestic firms predictably lining up on Neal’s side and the Bermuda contingent in opposition.

The naysayers may have the upper hand in the PR battle, though, with the release this week of a study by consulting firm The Brattle Group, which predicts that the tax would curtail the supply of reinsurance by 20 percent, substantially reducing coverage and increasing premium prices by as much as 9 percent in some lines of business.

Property and casualty coverage, which is usually reinsured on a global scale, would be less widely available and more expensive at a time when worldwide losses from natural disasters are escalating.

Manufacturing, oil, and chemical companies would be particularly hard hit, the study notes, and “would have to assume more risk just when their own capital structure is strained, leading to less investment and greater risk of insolvency.” ###