Federal Excise Tax on Reinsurance Premiums: A Cedent Guide
On this page
- Federal Excise Tax on Reinsurance Premiums: What US Cedents Placing Offshore Must Budget For
- Key Takeaways
- What Is the Federal Excise Tax on Reinsurance Premiums?
- Who Pays and How Is FET Reported?
- Which Exemptions Can Remove the Tax?
- What Did Validus Change About Cascading FET?
- Worked Example: Budgeting FET on an Offshore Programme
- When Does FET Apply? A Decision Table
- Which FET Mistakes Do Cedents Make Most Often?
- How Should Cedents Manage FET Across the Programme?
- How Does FET Interact With Accounting and Regulation?
- What Should Cedents Watch in the Current Environment?
- Checklist for Heads of Tax and Outwards Reinsurance
- Key Terms
- Sources
- Frequently Asked Questions
Federal Excise Tax on Reinsurance Premiums: What US Cedents Placing Offshore Must Budget For
Last reviewed: November 2026
The federal excise tax on reinsurance premiums is a US tax of 1% on premiums a US cedent pays to a foreign reinsurer for reinsurance covering US risks, imposed by section 4371 of the Internal Revenue Code. It applies unless the reinsurer qualifies for a treaty exemption or the premium is effectively connected with a US trade or business.
The rate looks small, but it is charged on gross premium flows across whole programmes. On a panel with significant non-exempt offshore capacity, it becomes a real budget line and a compliance obligation.
This guide is for CFOs, heads of tax, heads of outwards reinsurance and reinsurance accountants at US cedents. It is general information, not tax advice, so take professional advice on your own programme and filing position.
Key Takeaways
- Section 4371 taxes reinsurance premiums paid to foreign reinsurers at 1%, compared with 4% on direct casualty insurance placed with foreign insurers.
- The payer of the premium, usually the US cedent, must pay the tax and file Form 720 quarterly.
- Reinsurers in some treaty countries can be exempt through an IRS closing agreement, but Bermuda and Barbados reinsurers are not.
- After Validus and Rev. Rul. 2016-3, the IRS no longer applies the 1% tax to many wholly foreign retrocessions.
- Premiums effectively connected with a US trade or business are exempt under section 4373, unless a treaty removes them from US income tax.
- The tax cost depends on panel domicile and exemption status, so it must be tracked reinsurer by reinsurer.
What Is the Federal Excise Tax on Reinsurance Premiums?
The federal excise tax, often called FET, is an excise tax on premiums paid to foreign insurers and reinsurers. Section 4371 sets three rates per dollar of premium paid.
| Contract | Rate | Notes |
|---|---|---|
| Casualty insurance and indemnity bonds | 4 cents per dollar (4%) | Covers non-life policies on US risks placed directly with a foreign insurer |
| Life, sickness and accident insurance, and annuities | 1 cent per dollar (1%) | Direct life and health placed with a foreign insurer |
| Reinsurance covering either of the above | 1 cent per dollar (1%) | Reinsurance of US risks placed with a foreign reinsurer |
For cedents, the reinsurance rate is the one that matters. Any reinsurance of US-situs casualty or life business placed with a foreign reinsurer is in scope unless an exemption applies.
Which Risks Are in Scope?
The tax applies to policies covering risks wholly or partly within the United States, as defined in section 4372. A "policy of reinsurance" means any contract reinsuring the same kinds of risks taxable on the direct side.
For a US-domiciled cedent writing US business, most outwards reinsurance to foreign reinsurers is in scope by default. Exemption, not taxation, is what has to be established.
Who Pays and How Is FET Reported?
The person who pays the premium to the foreign reinsurer must pay the tax and file the return. The Form 720 instructions also cover nonresident intermediaries, such as foreign brokers, and set fallbacks if no payer files.
FET is reported quarterly on Form 720 under IRS No. 30. Returns are due on 30 April, 31 July, 31 October and 31 January for the preceding quarter.
What Does This Mean for Cedents in Practice?
In practice, the US cedent usually carries the obligation. Contracts with brokers should still state clearly who calculates, remits and files, so nothing falls between parties.
Additional premiums, adjustments and reinstatement premiums paid to foreign reinsurers should be considered in the base too. The exact treatment of ceding commissions and premium adjustments is a point to confirm with your tax adviser.
Which Exemptions Can Remove the Tax?
Three main routes can remove FET from a cession. Each has conditions that must be evidenced, not assumed.
Treaty Exemptions Through a Closing Agreement
Some US income tax treaties exempt premiums from FET. The IRS lists treaty exemptions for reinsurers in countries including the United Kingdom, Switzerland, Germany, France, Ireland, Japan, Italy, Spain, the Netherlands, Sweden, Finland, Israel, India, Mexico and Cyprus.
The exemption is obtained through a closing agreement under Rev. Proc. 2003-78, which must be renewed and recertified every three years. The IRS Federal Excise Tax Exemption Program and its list of companies with closing agreements are the starting points for checking a reinsurer.
Three limits matter:
- Luxembourg exemption covers insurance premiums only, not reinsurance premiums.
- For Finland, France, Germany and Sweden, the exemption generally does not apply where premiums are paid to an office outside the reinsurer's country of residence.
- Some treaties contain anti-conduit limits, so the exemption can be lost to the extent risk is passed on to a non-exempt reinsurer.
Bermuda and Barbados: No Treaty Exemption
The IRS states that section 6139 of the Technical and Miscellaneous Revenue Act of 1988 overrides the Bermuda and Barbados treaties for FET purposes. Premiums for coverage periods after 31 December 1989 remain taxable.
For many US programmes, this is the largest source of FET. Bermuda and other non-exempt offshore capacity often sit on the same panels as exempt European reinsurers.
Effectively Connected Income
Section 4373 exempts amounts effectively connected with the conduct of a trade or business within the United States. That typically covers premiums paid to a US branch of a foreign reinsurer that is taxed in the US on that income.
The exemption does not apply to amounts that a treaty exempts from US income tax. In that case, the reinsurer must rely on the treaty FET exemption instead.
What Did Validus Change About Cascading FET?
Validus ended the IRS position that FET cascades through wholly foreign retrocessions. In Validus Reinsurance, Ltd. v. United States, the D.C. Circuit held in 2015 that the 1% tax did not apply to a retrocession between foreign reinsurers.
The IRS then issued Rev. Rul. 2016-3 and revoked Rev. Rul. 2008-15. It said it would no longer apply the 1% tax to reinsurance between foreign reinsurers in the situations that ruling described.
The IRS also said no inference should be drawn for other policies. It will continue to enforce treaty limits on exemptions, including where a treaty-exempt reinsurer passes risk to a non-exempt one.
For cedents, the practical point is simple. FET is a cost on the first cession from the US to a foreign reinsurer, not usually on every onward retrocession.
Worked Example: Budgeting FET on an Offshore Programme
The illustration below is simplified and uses USD. It shows how panel domicile and exemption status drive the FET budget for a US cedent.
Programme (annual ceded premium):
| Treaty | Ceded Premium | Non-Exempt Foreign Share | Exempt Foreign Share (Closing Agreement) | US Reinsurers or US Branches (ECI) |
|---|---|---|---|---|
| Property cat XoL | 25,000,000 | 40% | 35% | 25% |
| Casualty quota share | 60,000,000 | 50% (offshore affiliate) | 30% | 20% |
| Life YRT | 15,000,000 | 100% (non-treaty reinsurer) | 0% | 0% |
FET calculation:
| Treaty | Taxable Premium | Calculation | FET |
|---|---|---|---|
| Property cat XoL | 25,000,000 × 40% = 10,000,000 | 10,000,000 × 1% | 100,000 |
| Casualty quota share | 60,000,000 × 50% = 30,000,000 | 30,000,000 × 1% | 300,000 |
| Life YRT | 15,000,000 × 100% = 15,000,000 | 15,000,000 × 1% | 150,000 |
| Total | 55,000,000 | 55,000,000 × 1% | 550,000 |
The exempt and ECI shares carry no FET, provided the closing agreements and ECI status are valid for the period. If the property cat panel shifted 15 points of share from exempt European reinsurers to non-exempt capacity, FET on that treaty would rise by 25,000,000 × 15% × 1% = 37,500.
Retrocession check: if the offshore affiliate on the casualty quota share retrocedes part of its share to another foreign reinsurer, post-Validus practice generally means no further 1% tax on that wholly foreign retrocession. The cedent's 300,000 still applies to its own cession.
The lesson for cedents: FET is a function of who is on the panel, not just how much premium is ceded. Panel changes at renewal should come with an updated FET estimate.
The lesson for reinsurers: an expired or unlisted closing agreement makes your capacity more expensive for US cedents. Exemption status is part of your competitive position.
When Does FET Apply? A Decision Table
The table below maps common placements to the usual FET outcome. It is a starting point, not a substitute for tax review.
| Placement | Usual FET Outcome | Why |
|---|---|---|
| US cedent cedes US risks to a US-domiciled reinsurer | No FET | Reinsurer is not foreign |
| US cedent cedes to a US branch of a foreign reinsurer taxed on that income | No FET | Effectively connected income exemption in section 4373 |
| US cedent cedes to a UK or Swiss reinsurer with a valid closing agreement | No FET | Treaty exemption, subject to treaty conditions |
| US cedent cedes to a Bermuda or Barbados reinsurer | 1% FET | No treaty exemption for FET |
| US cedent cedes to a German or French reinsurer's office outside its home country | Usually 1% FET | Office-location limit on the treaty exemption |
| Foreign reinsurer retrocedes to another foreign reinsurer | Usually no FET | Validus and Rev. Rul. 2016-3, subject to treaty limits |
| US insured buys direct casualty cover from a foreign insurer | 4% FET | Direct casualty rate, not the reinsurance rate |
Which FET Mistakes Do Cedents Make Most Often?
Six mistakes cause most FET under-payments, over-payments and audit queries. Each one is easy to prevent with the right data.
Assuming Exemption From Reputation
A large European reinsurer is assumed to be exempt without checking the IRS list or its closing agreement. Exemption depends on the specific entity and office, not the group name.
Missing Closing Agreement Renewals
Closing agreements must be renewed every three years. An exemption that lapsed mid-programme leaves part of the year taxable.
Ignoring Office-Location Limits
Premium is paid to a branch outside the reinsurer's home country. For some treaties, that removes the exemption.
Leaving Brokers and Cedents Each Assuming the Other Files
Nobody files for a placement because each party thought the other would. The IRS then looks to the payer of the premium.
Not Updating FET When Panel Shares Change
Mid-term or renewal changes in panel shares are not passed to tax. Quarterly returns are then based on last year's panel.
Confusing FET With Other Cross-Border Taxes
FET is treated as if it replaced other taxes on related-party reinsurance. Large US groups may also need to consider the base erosion and anti-abuse tax (BEAT) on premiums to foreign affiliates, which is a separate regime.
How Should Cedents Manage FET Across the Programme?
Good FET control starts with reinsurer data and ends with a reconciled quarterly return. The steps and questions below make it practical.
What Data Should Be Held for Each Reinsurer?
| Data Item | Why It Matters |
|---|---|
| Legal entity, domicile and paying office | Decides whether a treaty exemption can apply |
| Closing agreement status and renewal date | Evidences exemption for each quarter |
| US branch and effectively connected income status | Supports the section 4373 exemption |
| Share of each treaty and each premium transaction | Drives the taxable premium base |
| Retrocession arrangements disclosed by the reinsurer | Flags possible anti-conduit issues under some treaties |
| Party responsible for filing (cedent or broker) | Prevents missed or duplicate filings |
Which Questions Should Be Asked at Renewal?
- Which panel members are non-exempt, and what FET does the proposed panel generate?
- Are all claimed closing agreements current and listed with the IRS?
- Is premium paid to the reinsurer's home office or to a branch elsewhere?
- Does any treaty-exempt reinsurer retrocede US risks to non-exempt capacity?
- Who files Form 720 for each placement, and how is that evidenced?
For a wider view of jurisdictional exposure on your panel, see the offshore reinsurance map. For settlement timing across borders, see cross-border reinsurance settlement.
How Does FET Interact With Accounting and Regulation?
FET is a cost of placing reinsurance, not a tax on profits. Most cedents treat it as part of the cost of the reinsurance programme, but the exact accounting policy should be agreed with auditors.
The same reinsurer data that drives FET also drives statutory reporting. US Schedule F reporting, reinsurance credit and collateral requirements all depend on reinsurer domicile and status.
Our guide to audit-ready reinsurance reporting shows how to build one control framework across these needs.
What Should Cedents Watch in the Current Environment?
The FET framework has been stable since Rev. Rul. 2016-3, but cross-border tax on reinsurance keeps drawing attention. Rules on related-party reinsurance, minimum taxes and treaty benefits continue to evolve.
Cedents should check the IRS closing agreement list and Form 720 instructions at least annually. They should also confirm any legislative or treaty change with their tax advisers before each renewal.
Checklist for Heads of Tax and Outwards Reinsurance
Use this checklist before each renewal and each quarterly filing.
- Every foreign reinsurer on the panel is classified as non-exempt, treaty-exempt or ECI-exempt
- Closing agreements are verified against the IRS list, with renewal dates tracked
- Paying office locations are checked against treaty office-location limits
- Bermuda, Barbados and other non-treaty capacity is identified and budgeted at 1%
- Responsibility for Form 720 filing is agreed with brokers in writing
- Panel share changes flow to tax before the next quarterly return
- Reinstatement and adjustment premiums are included in the FET review
- Reinsurer data and premium transactions sit in a controlled system, not spreadsheets
For the last point, a centralised reinsurance treaty management platform holds terms, shares and premium calculations, and bordereaux reconciliation checks premiums by reinsurer against the records.
Key Terms
Federal excise tax (FET): The US tax under section 4371 on premiums paid to foreign insurers and reinsurers for policies covering US risks.
Foreign reinsurer: A reinsurer that is a foreign corporation, foreign partnership or nonresident individual, as defined in section 4372.
Closing agreement: An agreement with the IRS, under Rev. Proc. 2003-78, through which a foreign insurer or reinsurer establishes a treaty-based FET exemption.
Effectively connected income (ECI): Income connected with a US trade or business, exempt from FET under section 4373 unless a treaty removes it from US income tax.
Anti-conduit rule: A treaty limit that removes the FET exemption to the extent risk is passed on to a non-exempt person.
Cascading FET: The former IRS position that FET applied again on each foreign-to-foreign retrocession, largely ended by Validus and Rev. Rul. 2016-3.
Form 720: The IRS quarterly federal excise tax return, on which foreign insurance taxes are reported under IRS No. 30.
Retrocession: Reinsurance bought by a reinsurer to protect its own assumed portfolio.
Sources
Frequently Asked Questions
What is the federal excise tax on reinsurance premiums?
The federal excise tax on reinsurance premiums is a US tax under section 4371 of the Internal Revenue Code. The federal excise tax applies at 1% of premiums paid to foreign reinsurers on reinsurance covering US risks, unless a treaty or statutory exemption applies.
What are the FET rates for insurance and reinsurance?
Section 4371 sets FET at 4 cents per dollar of premium for casualty insurance and indemnity bonds, and 1 cent for life, sickness, accident and annuity contracts. Reinsurance covering any of those contracts is taxed at 1 cent per dollar of premium paid to a foreign reinsurer.
Who pays the federal excise tax on reinsurance premiums?
The person who pays the premium to the foreign reinsurer, which is usually the US cedent, must pay the federal excise tax and file Form 720. Brokers and intermediaries that remit premium may also carry the obligation, so contracts should say who files.
Which countries' reinsurers are exempt from FET?
The IRS lists treaty exemptions from the federal excise tax for reinsurers in countries including the United Kingdom, Switzerland, Germany, France, Ireland, Japan and others. Exemptions need an IRS closing agreement, some have office-location limits, and Luxembourg's covers insurance but not reinsurance.
Are Bermuda reinsurers exempt from the federal excise tax?
No. The IRS states that, under section 6139 of the Technical and Miscellaneous Revenue Act of 1988, the US income tax treaties with Bermuda and Barbados do not prevent the federal excise tax on premiums for coverage periods after 31 December 1989.
Does FET apply to retrocessions between foreign reinsurers?
After Validus Reinsurance v. United States in 2015, the IRS issued Rev. Rul. 2016-3 and stopped applying the 1% tax to reinsurance between foreign reinsurers in the situations described in the revoked Rev. Rul. 2008-15. The IRS said no inference applies to other policies.
How do foreign reinsurers get an FET exemption?
Foreign reinsurers get a treaty-based FET exemption through a closing agreement with the IRS under Rev. Proc. 2003-78. The closing agreement must be renewed and recertified every three years, and the IRS publishes a list of companies with closing agreements.
How often is FET reported to the IRS?
The federal excise tax on foreign insurance premiums is reported quarterly on Form 720 under IRS No. 30. Returns are due by the end of the month after each quarter, on 30 April, 31 July, 31 October and 31 January.
Hitul Mistry
CEO, Insurnest
An InsurTech leader with more than a decade of experience across insurance and technology, focused on solving business problems with the help of technology. Has worked with brokers, insurance carriers, and reinsurance firms across the India, UAE, and US markets.
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