Booming Tax Insurance Demand Outpaces Underwriting Talent. Here’s What That Means for Carriers and Insureds

There remains enough uncertainty about commercial tax exposures that insuring them is a booming business.
By: | April 23, 2019

For all the certainty of death and taxes, there remains enough uncertainty in commercial tax exposures that insuring them is a booming business.


“We have been active in tax insurance all by ourselves for a long time,” said Gary Blitz, senior managing director, co-practice leader, and head of the tax insurance practice at Aon. “Now some competitors are starting to pay attention.”

With a global market of at least $8 billion, there would seem to be plenty of room.

“We should never bump into each other,” Blitz said. “Globally last year we handled more than $6 billion bound and written, which was double in limits and premium from 2017. This is a huge business.”

Austin Cahill, senior vice president and head of the tax practice at Atlantic Global Risk, suggested that several related recent developments have driven the rapid growth of tax insurance.

“First there was the boom in reps and warranties (R&W) coverage specifically to address unknown risks in a transaction. Identified or known risks [notably taxes] were excluded, and sellers grew weary of providing indemnification for those.”

“We have been active in tax insurance all by ourselves for a long time. Now some competitors are starting to pay attention.” – Gary Blitz, senior managing director, co-practice leader, and head of the tax insurance practice, Aon

That led to a spike in hiring tax experts for mergers and acquisitions as firms saw an opportunity to close a gap. Underwriters were better able to price the risks, and the costs of coverage declined sharply. “Tax insurance used to cost in the high single digits to low double digits as a percentage of the transaction value,” said Cahill. “Now it as low as 2 percent.”

That affordability stimulated demand. Tax insurance went from something that was only considered if necessary, to a modest addition to many deals. While tax insurance is categorized within transaction liability, Blitz noted that it actually preceded R&W.

“I got involved early, in the 1980s, working with a Lloyd’s syndicate. Tax insurance predated R&W, even though it has since been eclipsed. I was the counsel for the first U.S. R&W policy,” he said.
Blitz recalls that while tax insurance initially was thought of as single-risk errors and omissions (E&O) coverage, it was not truly a good fit under those policies.

Gary Blitz, senior managing director, co-practice leader, and head of the tax insurance practice, Aon

“When your tax attorneys make a recommendation on the tax treatment of a transaction, that of necessity makes assumptions. If the tax authorities make different assumptions and the tax ruling is different, it’s not necessarily an error in the recommendation, it’s just different. However, a tax-insurance policy will pay if the intended tax treatment is successfully challenged without regard to there being an error or omission.”

For some large and complex transactions, the parties will often seek a private-letter ruling from the tax authorities. In most cases having that in hand would make tax insurance redundant, but not necessarily.

“Even in a private letter there are assumptions,” Blitz cautioned. He explained that the ruling is made based on the expectations the party has for the transactions. If events are different, the ruling might be as well.

And that is with a letter in hand, which is not always possible or desirable. “The availability of private-letter rulings is not broad,” said Blitz. “There are many areas when the authorities will not provide a letter. When they will, it takes time, which may be tight for a transaction. And then there are cases when a party may prefer not to provide the details of a transaction in advance. In all those cases, tax insurance is preferable.”

All that said, Blitz stressed that tax insurance is specifically for “bringing certainty to sound transactions. It is not in any way to promote aggressive tax schemes.” If anything, there is more scrutiny because the transactions are evaluated by the broker before taking on the placement, and then by the underwriters. Marsh placed more than $1 billion in tax insurance limits in 2018, and brought in a second dedicated broker, to work with Mark McTigue, senior vice president in transactional risk at Marsh, who joined the brokerage two years ago.

“I am 100 percent dedicated to tax insurance,” said McTigue, who has been in the field for about 25 years.

“There has been tax insurance in the transactional practice for many years. I brought in a Rolodex from relationships with the Big Four accounting firms and across the corporate sector, and have been working with the sales force to get the word out about R&W and especially tax insurance.”

Defining the Coverage

McTigue stressed that despite the size and accelerating growth that tax insurance has achieved in the last year or two, there is still a great deal of education to be done — not only on what tax insurance is, but just as importantly what it is not.

“We are not facilitating tax shelters,” he stated. “Everything has to be above board.”

Another area that is a good fit for tax insurance is the booming renewables industry and investment and production tax credits for renewable energy projects, especially solar.

“Some of these developers are thinly capitalized and are using the tax credit to help finance the projects,” McTigue explained. In terms of underwriting capacity, the carriers have kept pace with the growth of tax insurance.

“We work with the normal pool of R&W underwriters,” said Blitz. “About half of those write tax coverage. The sector has made great strides in just a few years. In 2013, we placed a $350-million-limit policy, and it took 14 carriers. These days the limits top out at about $1.5 billion.”

The limit is not limits, but people.

“We are not facilitating tax shelters. Everything has to be above board.” – Mark McTigue, senior vice president in transactional risk,  Marsh

“The biggest impediment from the carriers is manpower,” said Blitz.

“Most carriers are pretty light on staff. They need to be hiring. Although there is a lot of standardization, every policy is for a specific transaction, so has to be manuscripted to identify exactly what is being covered.”


Of the two dozen carriers that write R&W coverage, it is estimated that slightly fewer than half also write tax insurance. In August 2017, Ascot Group Ltd. created Ethos Specialty Insurance Services as part of its long-term strategy to build a global property and casualty insurance and reinsurance business.

“Ethos Specialty is new to tax insurance,” said Joey Juhn, senior vice president at Ethos, “but the team of underwriters has a strong prior history in tax.” And tax codes can be so very complicated.

“A good faith effort to comply is important,” said Juhn, “and part of that is seeking a recommendation from counsel. Taxpayers work with their outside counsel and insurers work with their outside counsel to ensure that the tax positions being insured are reasonable and defensible.”

Despite the market’s profitability, there are already growing pains. With existing brokers and carriers expanding, and new competitors entering, the segment is in flux.

“I was in the middle of a placement and suddenly the R&W staff at the carrier had to take over because the tax person left. It’s not common, but that was also not the first time. I would urge carriers to hire,” one broker said. &

Gregory DL Morris is an independent business journalist based in New York with 25 years’ experience in industry, energy, finance and transportation. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Exclusive | Hank Greenberg on China Trade, Starr’s Rapid Growth and 100th, Spitzer, Schneiderman and More

In a robust and frank conversation, the insurance legend provides unique insights into global trade, his past battles and what the future holds for the industry and his company.
By: | October 12, 2018 • 12 min read

In 1960, Maurice “Hank” Greenberg was hired as a vice president of C.V. Starr & Co. At age 35, he had already accomplished a great deal.

He served his country as part of the Allied Forces that stormed the beaches at Normandy and liberated the Nazi death camps. He fought again during the Korean War, earning a Bronze Star. He held a law degree from New York Law School.


Now he was ready to make his mark on the business world.

Even C.V. Starr himself — who hired Mr. Greenberg and later hand-picked him as the successor to the company he founded in Shanghai in 1919 — could not have imagined what a mark it would be.

Mr. Greenberg began to build AIG as a Starr subsidiary, then in 1969, he took it public. The company would, at its peak, achieve a market cap of some $180 billion and cement its place as the largest insurance and financial services company in history.

This month, Mr. Greenberg travels to China to celebrate the 100th anniversary of C.V. Starr & Co. That visit occurs at a prickly time in U.S.-Sino relations, as the Trump administration levies tariffs on hundreds of billions of dollars in Chinese goods and China retaliates.

In September, Risk & Insurance® sat down with Mr. Greenberg in his Park Avenue office to hear his thoughts on the centennial of C.V. Starr, the dynamics of U.S. trade relationships with China and the future of the U.S. insurance industry as it faces the challenges of technology development and talent recruitment and retention, among many others. What follows is an edited transcript of that discussion.

R&I: One hundred years is quite an impressive milestone for any company. Celebrating the anniversary in China signifies the importance and longevity of that relationship. Can you tell us more about C.V. Starr’s history with China?

Hank Greenberg: We have a long history in China. I first went there in 1975. There was little there, but I had business throughout Asia, and I stopped there all the time. I’d stop there a couple of times a year and build relationships.

When I first started visiting China, there was only one state-owned insurance company there, PICC (the People’s Insurance Company of China); it was tiny at the time. We helped them to grow.

I also received the first foreign life insurance license in China, for AIA (The American International Assurance Co.). To date, there has been no other foreign life insurance company in China. It took me 20 years of hard work to get that license.

We also introduced an agency system in China. They had none. Their life company employees would get a salary whether they sold something or not. With the agency system of course you get paid a commission if you sell something. Once that agency system was installed, it went on to create more than a million jobs.

R&I: So Starr’s success has meant success for the Chinese insurance industry as well.

Hank Greenberg: That’s partly why we’re going to be celebrating that anniversary there next month. That celebration will occur alongside that of IBLAC (International Business Leaders’ Advisory Council), an international business advisory group that was put together when Zhu Rongji was the mayor of Shanghai [Zhu is since retired from public life]. He asked me to start that to attract foreign companies to invest in Shanghai.

“It turns out that it is harder [for China] to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

Shanghai and China in general were just coming out of the doldrums then; there was a lack of foreign investment. Zhu asked me to chair IBLAC and to help get it started, which I did. I served as chairman of that group for a couple of terms. I am still a part of that board, and it will be celebrating its 30th anniversary along with our 100th anniversary.


We have a good relationship with China, and we’re candid as you can tell from the op-ed I published in the Wall Street Journal. I’m told that my op-ed was received quite well in China, by both Chinese companies and foreign companies doing business there.

On August 29, Mr. Greenberg published an opinion piece in the WSJ reminding Chinese leaders of the productive history of U.S.-Sino relations and suggesting that Chinese leaders take pragmatic steps to ease trade tensions with the U.S.

R&I: What’s your outlook on current trade relations between the U.S. and China?

Hank Greenberg: As to the current environment, when you are in negotiations, every leader negotiates differently.

President Trump is negotiating based on his well-known approach. What’s different now is that President Xi (Jinping, General Secretary of the Communist Party of China) made himself the emperor. All the past presidents in China before the revolution had two terms. He’s there for life, which makes things much more difficult.

R&I: Sure does. You’ve got a one- or two-term president talking to somebody who can wait it out. It’s definitely unique.

Hank Greenberg: So, clearly a lot of change is going on in China. Some of it is good. But as I said in the op-ed, China needs to be treated like the second largest economy in the world, which it is. And it will be the number one economy in the world in not too many years. That means that you can’t use the same terms of trade that you did 25 or 30 years ago.

They want to have access to our market and other markets. Fine, but you have to have reciprocity, and they have not been very good at that.

R&I: What stands in the way of that happening?

Hank Greenberg: I think there are several substantial challenges. One, their structure makes it very difficult. They have a senior official, a regulator, who runs a division within the government for insurance. He keeps that job as long as he does what leadership wants him to do. He may not be sure what they want him to do.

For example, the president made a speech many months ago saying they are going to open up banking, insurance and a couple of additional sectors to foreign investment; nothing happened.

The reason was that the head of that division got changed. A new administrator came in who was not sure what the president wanted so he did nothing. Time went on and the international community said, “Wait a minute, you promised that you were going to do that and you didn’t do that.”

So the structure is such that it is very difficult. China can’t react as fast as it should. That will change, but it is going to take time.

R&I: That’s interesting, because during the financial crisis in 2008 there was talk that China, given their more centralized authority, could react more quickly, not less quickly.

Hank Greenberg: It turns out that it is harder to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.

R&I: Obviously, you have a very unique perspective and experience in China. For American companies coming to China, what are some of the current challenges?


Hank Greenberg: Well, they very much want to do business in China. That’s due to the sheer size of the country, at 1.4 billion people. It’s a very big market and not just for insurance companies. It’s a whole range of companies that would like to have access to China as easily as Chinese companies have access to the United States. As I said previously, that has to be resolved.

It’s not going to be easy, because China has a history of not being treated well by other countries. The U.S. has been pretty good in that way. We haven’t taken advantage of China.

R&I: Your op-ed was very enlightening on that topic.

Hank Greenberg: President Xi wants to rebuild the “middle kingdom,” to what China was, a great country. Part of that was his takeover of the South China Sea rock islands during the Obama Administration; we did nothing. It’s a little late now to try and do something. They promised they would never militarize those islands. Then they did. That’s a real problem in Southern Asia. The other countries in that region are not happy about that.

R&I: One thing that has differentiated your company is that it is not a public company, and it is not a mutual company. We think you’re the only large insurance company with that structure at that scale. What advantages does that give you?

Hank Greenberg: Two things. First of all, we’re more than an insurance company. We have the traditional investment unit with the insurance company. Then we have a separate investment unit that we started, which is very successful. So we have a source of income that is diverse. We don’t have to underwrite business that is going to lose a lot of money. Not knowingly anyway.

R&I: And that’s because you are a private company?

Hank Greenberg: Yes. We attract a different type of person in a private company.

R&I: Do you think that enables you to react more quickly?

Hank Greenberg: Absolutely. When we left AIG there were three of us. Myself, Howie Smith and Ed Matthews. Howie used to run the internal financials and Ed Matthews was the investment guy coming out of Morgan Stanley when I was putting AIG together. We started with three people and now we have 3,500 and growing.

“I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

R&I:  You being forced to leave AIG in 2005 really was an injustice, by the way. AIG wouldn’t have been in the position it was in 2008 if you had still been there.


Hank Greenberg: Absolutely not. We had all the right things in place. We met with the financial services division once a day every day to make sure they stuck to what they were supposed to do. Even Hank Paulson, the Secretary of Treasury, sat on the stand during my trial and said that if I’d been at the company, it would not have imploded the way it did.

R&I: And that fateful decision the AIG board made really affected the course of the country.

Hank Greenberg: So many people lost all of their net worth. The new management was taking on billions of dollars’ worth of risk with no collateral. They had decimated the internal risk management controls. And the government takeover of the company when the financial crisis blew up was grossly unfair.

From the time it went public, AIG’s value had increased from $300 million to $180 billion. Thanks to Eliot Spitzer, it’s now worth a fraction of that. His was a gross misuse of the Martin Act. It gives the Attorney General the power to investigate without probable cause and bring fraud charges without having to prove intent. Only in New York does the law grant the AG that much power.

R&I: It’s especially frustrating when you consider the quality of his own character, and the scandal he was involved in.

In early 2008, Spitzer was caught on a federal wiretap arranging a meeting with a prostitute at a Washington Hotel and resigned shortly thereafter.

Hank Greenberg: Yes. And it’s been successive. Look at Eric Schneiderman. He resigned earlier this year when it came out that he had abused several women. And this was after he came out so strongly against other men accused of the same thing. To me it demonstrates hypocrisy and abuse of power.

Schneiderman followed in Spitzer’s footsteps in leveraging the Martin Act against numerous corporations to generate multi-billion dollar settlements.

R&I: Starr, however, continues to thrive. You said you’re at 3,500 people and still growing. As you continue to expand, how do you deal with the challenge of attracting talent?

Hank Greenberg: We did something last week.

On September 16th, St. John’s University announced the largest gift in its 148-year history. The Starr Foundation donated $15 million to the school, establishing the Maurice R. Greenberg Leadership Initiative at St. John’s School of Risk Management, Insurance and Actuarial Science.

Hank Greenberg: We have recruited from St. John’s for many, many years. These are young people who want to be in the insurance industry. They don’t get into it by accident. They study to become proficient in this and we have recruited some very qualified individuals from that school. But we also recruit from many other universities. On the investment side, outside of the insurance industry, we also recruit from Wall Street.

R&I: We’re very interested in how you and other leaders in this industry view technology and how they’re going to use it.

Hank Greenberg: I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.

R&I: So as the pre-eminent leader of the insurance industry, what do you see in terms of where insurance is now and where it’s going?

Hank Greenberg: The country and the world will always need insurance. That doesn’t mean that what we have today is what we’re going to have 25 years from now.

How quickly the change comes and how far it will go will depend on individual companies and individual countries. Some will be more brave than others. But change will take place, there is no doubt about it.


More will go on in space, there is no question about that. We’re involved in it right now as an insurance company, and it will get broader.

One of the things you have to worry about is it’s now a nuclear world. It’s a more dangerous world. And again, we have to find some way to deal with that.

So, change is inevitable. You need people who can deal with change.

R&I:  Is there anything else, Mr. Greenberg, you want to comment on?

Hank Greenberg: I think I’ve covered it. &

The R&I Editorial Team can be reached at [email protected]