NU Online News Service, June 11, 11:20 a.m.EDT

NEW YORK and WASHINGTON–Proposed legislation denyingtax deductions for reinsurance premiums paid to offshore affiliateswill likely pass through Congress, a Bermuda executive predictedhere yesterday, but he criticized the measure as a restriction offree trade.

Speaking at the Standard & Poor's Insurance Conference heldhere, Edward Noonan, chief executive officer, Validus Holdings,Ltd., said the "need for revenue in Washington will probablyoutweigh the need for principled regulation and taxation," whenasked about the potential fate of H.R. 3424, the so-called "Neal bill," sponsored by Rep. RichardNeal, D-Mass.

The tax scheme is supported by a coalition of domestic insurancecarriers, headed by William Berkley of Greenwich, Conn.-based W.R.Berkley Corp.

The proposal would disallow tax deductions for direct writinginsurance companies in the United States that cede business tooffshore affiliates.

The Obama administration supported the legislation throughsimilar provisions in its 2011 budget proposal.

"It's a bad idea," Mr. Noonan said. "This is really aninternational trade issue. The United States insurance marketcertainly is not disadvantaged," he said, referring to thecoalition's contention that direct writing insurers that take taxdeductions on offshore cessions have an unfair competitive advantage.

"I don't have any dog in the fight," Mr. Noonan proclaimed. "Idon't have a U.S. subsidiary. I don't have a quota share in anoffshore location."

Earlier this year, at a Bank of America Insurance conference,however, Mr. Noonan, responding to a question about his acquisitionappetite, did muse about the possibility–at some future date–ofmoving into the U.S. market and diversifying Validus' book toinclude casualty business.

Speaking at yesterday's S&P conference, Mr. Noonan said, "Iam still stunned that major U.S. insurance companies suddenlydecided that free trade is a bad idea, and that they really needgovernment protection."

On Tuesday, Mr. Berkley, speaking at the 2nd Annual OppenheimerInsurance CEO Summit, also predicted passage of the Neal bill.

"Yes, we will get our tax legislation passed," he said,answering a question that had not even been asked at the start of aQ&A session.

"And all those guys who are offshore taking advantage ofAmericans who pay tax–[those companies] who reinsure theiraffiliated business offshore will eventually have to pay up," hesaid.

"It will happen sooner than later," Mr. Berkley said.

Congressional sources told NU Online News Service that a numberof issues surrounding the proposal are generating concern. Theissues include the proposal's impact on domestic insurance rates,concerns about how U.S. trading partners view the proposed tax, andthe disparity between the revenue projected by government agenciesthat would be generated by the Neal bill and the similar Obamaadministration proposal.

Specifically, the Congressional Budget Office and the Joint TaxCommittee project that the Neal bill would generate $17 billion inadditional revenue over 10 years, while the same agencies projectthe revenue generated by the similar Obama administration proposalat only $2.3 billion.

At the S&P conference, Mr. Noonan said that "it's just maybea sign of the times that companies that have been ranting againstregulation and taxation for years and years suddenly have concludedthat what we really need is a more rigorous tax regime, simplydirected at other people."

Fighting a more grassroots battle, foreign reinsurers, through agroup called the Coalition for Competitive Insurance Rates,released a YouTubevideo yesterday appealing to consumers. The video diagrams andexplains the risk-sharing function of reinsurers.

"By spreading the risk around the world, insurance companiesdon't become overexposed, and [they] can provide consumers withlower prices–all thanks to reinsurers," the voiceover on the videosays, also suggesting that the annual cost of the Neal bill toconsumers would be $10-to-$12 billion.