Chubb has rejoined the fight to eliminate tax advantages forforeign competitors, the insurer's vice chairman said last week,predicting that private discussions with lawmakers would soonbecome public through Congressional hearings.

“We're working with a coalition of U.S.-domiciledproperty-casualty companies to urge Congress to amend the U.S. taxcode,” said John Degnan, vice chairman of Warren, N.J.-based Chubb,during an earnings conference call.

“Our goal is to…level [the] playing field” with carriers whoavoid U.S. taxes by transacting insurance business on shore, andthen cede all or most of the premiums to “affiliates in tax-havenjurisdictions,” he said, noting that Bermuda is just one suchhaven.

Mr. Degnan did not disclose other coalition members or specificsof changes being proposed by the coalition, but he did predict thebattle would become contentious and more public by the end of theyear.

Chubb, together with The Hartford, led the last fight toeliminate offshore tax advantages in 2000, with proposals includinga hike in the federal excise tax on related-party reinsurance andtaxing imputed income of U.S. subsidiaries, National Underwriterreported in its Feb. 21, 2000 edition.

Chubb is no stranger to the Bermuda market. In 2001, Chubb andAmerican International Group were among the lead investors inAllied World Assurance Company, a Bermuda company formed in thewake of 9/11–which has since become a public company. In 2005,Chubb was also a lead investor in Harbor Point, a reinsurancecompany essentially created from what was once the Chubb Re book ofbusiness.

Mr. Degnan said U.S. primary p-c insurers now have a “heightenedconcern” about competitive disadvantages that have been “aggravatedby the increasing number of carriers engaging in [the described]tax-avoidance strategy, and by the very substantial percentage oftheir premiums ceded to tax-haven affiliates”–a figure that he said“respected commentators” have put in the $10-to-$20 billion range,without further identifying the source of the figure.

“The landscape has changed, and this is a Democratic Congresslooking for paybacks whenever they want to fund a new program,” hesaid, adding that “this is an easy way to harvest some tax revenuesthat ought to be coming from companies that are avoiding [them]now.”

Mr. Degnan's words echoed those of William Berkley, chairman ofGreenwich, Conn.-based W.R. Berkley Corp., first reported on NU'sOnline News Service on Nov. 20 last year, when he announced hisintention to meet with Congressional Democrats to eliminate taxadvantages of Bermuda companies.

“It's not just Bermuda,” noted Mr. Degnan, who said thecoalition targets all jurisdictions “where tax advantages adhere tothe ceding of reinsurance premiums.”

Responding to an analyst who asked Mr. Degnan how investorscould follow the progress of the coalition, and when the news mighthit The New York Times, Mr. Degnan predicted: “It will be easy tofollow because the arena is going to be a public one beforeCongress. There will be committee hearings and billsintroduced–and, I imagine, a pretty rigorous debate [with] ourcompetitors.”

Adding that there have been “some allusions to this already inthe public press,” he also revealed there have been a number ofprivate discussions with federal lawmakers. “Once Congress has ahearing and the other side engages, you won't have any troublefollowing it,” he said.

During a separate earnings conference for W.R. Berkley, inaddition to reporting a 17 percent jump in net income, Mr. Berkleywas asked to comment on business strategies he might adopt to copewith the competitive tax advantages of offshore companies–includingthe possibility of moving out of the United States.

“We'll have to cross that bridge when we come to it,” he said.“For the moment, we're optimistic that we'll be able to deal withthe Bermuda issue,” adding that his company would evaluate all itsoptions when this session of Congress ends.

There are a number of ways to address taxation issues, “none ofwhich I believe are good”–and moving to Bermuda or the equivalentis only one of them, he said, promising to have a more informedresponse by the third quarter.

In his remarks last week, Mr. Berkley was not critical ofcompanies that have adopted the strategies he's been fightingagainst. “That is what you want to do for shareholders,” he said.“Right now, if you're smart and shrewd, you can take money from allover the world and move it to tax havens….It's happening not justhere, but in the U.K. People are doing it from Lloyd's.”

(Earlier this year, London-based Kiln plc announced itsintention to set up a Bermuda operation–see the April 16 edition ofNU. An insurance subsidiary of W.R. Berkley is a significant Kilnshareholder.)

“The ultimate question [is], how are governments going to getrevenue to support their societies?” Mr. Berkley continued. “I'mnot suggesting that [competitors are] wrong in what they're doing,just that…the government should be cognizant of the problem…andthat if they leave [the taxation system] as it is, the resultultimately will be all insurance companies leaving the UnitedStates.”

Executives of two Bermuda companies–Everest Re, which reported a77 percent jump in first-quarter income, and Partner Re, a 1percent decline–reacted to Chubb's announcement in response toanalysts' questions the same day.

At Everest, CEO Joseph Taranto said he didn't expect the Bermudatax situation to change, basing his prediction on the outcome ofthe last public battle.

“There clearly was a big push to make changes…years ago, andthat gained some momentum, but ultimately that was not seen as theright way to go by the Treasury or in Congress,” he said,suggesting that more study was put into the issue back then thanseems to be the case today.

Executives, including Mr. Berkley, generally seemed to agreethat companies writing reinsurance only, such as PartnerRe, are notthe target of the battle. “But we may well get caught up in thesolution to this problem” anyway, said PartnerRe CEO PatrickThiele.

However, he predicted that any damage caused by a taxationchange to a company writing reinsurance business would be less thanthe damage done to primary companies.

“Over a long period of time, it is clear that either throughregulation or legislative fiat, there will be a gradual slowreduction in the Bermuda advantage,” Mr. Thiele added.