H.R. 1481 — CART Act of 2025

This section establishes the short title of the Act as the “Catastrophic Risk Transfer Act of 2025” or the “CART Act of 2025.”

This section establishes a new subchapter M regime for catastrophic risk transfer companies under the Internal Revenue Code of 1986. It defines a catastrophic risk transfer company as a domestic corporation organized and licensed under state special purpose insurer law, authorized by state insurance regulators, and principally engaged in catastrophic risk transfer activities limited to issuing equity and debt securities, holding qualified investments, and entering into insurance or reinsurance agreements covering catastrophic risks with unrelated persons. As background, catastrophic risk transfer companies are special purpose insurance vehicles used to transfer low-frequency, high-severity risks, such as certain property catastrophe or mortality risks, to capital markets. The section limits qualification to companies that elect the regime, derive at least 90 percent of gross income from investment income and specified reinsurance or insurance premiums, and fully collateralize the covered risk. It also treats a series or class of securities that is primarily linked to a designated reinsurance agreement and collateral pool as a separate corporation for federal tax purposes, other than for determining whether the company meets the definition of a catastrophic risk transfer company. The section also imposes a tax on companies that fail the 90 percent gross income test but qualify for relief because the failure was due to reasonable cause and not willful neglect. The tax equals the excess of nonqualifying gross income over one-ninth of qualifying gross income. It defines catastrophic risk as a low-likelihood, large-loss risk, and specifies that direct insurance losses must exceed $25 million to qualify as “large in amount.” It further defines qualified investments as cash, money market fund interests, and investment-grade debt securities and funds primarily holding such securities, and defines regulated insurance company by reference to state insurance licensing and regulation under ERISA section 514(b)(2).

This section limits state and local premium taxation of catastrophic risk transfer companies by prohibiting any taxing jurisdiction other than the State in which the company is created or organized from imposing a premium tax on premiums paid to, or received by, the company on a policy of reinsurance. It also caps any premium tax that a State may impose under this section at no more than the tax that would apply under 26 U.S.C. § 4371 if the premiums were paid to a foreign insurer or reinsurer. As background, catastrophic risk transfer companies are defined by reference to 26 U.S.C. § 860M, and policies of reinsurance are defined by reference to 26 U.S.C. § 4372(f).