WASHINGTON--U.S. Sen. Hillary Clinton's announcement that ifelected president she would eliminate foreign insurers' "unfair"tax advantage is based on a "myth," said a Bermuda insurers'representative.

The New York Democrat, who has been trailing Sen. Barack Obama,D-Ill., in the Democratic primary, issued a call for eliminatingthe tax advantage she said foreign insurers have in the UnitedStates in a campaign statement issued this week.

But Brad Kading, president and executive director of theAssociation of Bermuda Insurers and Reinsurers, said in a statementthat "it is a myth that there is a U.S. tax loophole that exists tobenefit non-U.S. insurers."

Sen. Clinton's statement on insurance company taxes came outafter Fitch Ratings issued a report that found, in part, that eventhough criticism of Bermuda's tax advantage is increasing, it "isunlikely to disappear in the foreseeable future."

Fitch analysts said in the report that "the politicalmaneuvering required to pass legislation altering the current taxsystem is extensive, and unlikely to occur in thenear term."

It explained that insurance capacity and the cost of insuranceremain "sensitiveissues" in politically important coastal states inthe United States such as Florida, New York and Texas.

As a result, Fitch said it believes opponents of legislation toeffectively increase taxes on Bermuda insurers and reinsurers couldconvincingly argue that doing so would reduce reinsurance andinsurance capacity, "and thus increase the cost of insurance."

Fitch said it believes Washington's reluctance to give up taxrevenue makes it even more unlikely that legislation would bepassed to reduce taxes on U.S. reinsurers and insurers to level theplaying field between them and their Bermuda-domiciledcompetitors.

Classifying her plan as an "insourcing" agenda, Sen. Clintonlate Wednesday proposed a wide range of initiatives to create $7billion a year in new tax benefits and investments for firms thatcreate U.S. jobs, and to help domestic insurers by cutting what thestatement said was a benefit to foreign insurers.

Mr. Kading's statement said his group is "disappointed in Sen.Clinton's position but will work with her team if she iselected."

The tax "myth," said Mr. Kading, "is recognized by U.S. businessand consumer groups which have helped us beat back recent effortsby a handful of very large U.S. insurers that are advocatinganti-competitive legislation intended to generally disadvantagenon-U.S. insurers competing in the U.S. market," Mr. Kadingsaid.

He added that if Sen. Clinton is elected president, his members"will have an opportunity to explain the important economiccontribution of the Bermuda market to the U.S. consumer."

He explained that in the last seven years, Bermuda insurers andreinsurers have paid more than $25 billion in U.S. propertycatastrophe claims alone. "Our companies benefit U.S. consumersenormously," he added.

A statement on Mr. Kading's behalf was issued by his officewhile he was enroute to Geneva. An office spokesperson said Mr.Kading would have further comments on Sen. Clinton's proposal afterhe meets with association members and returns to the UnitedStates.

According to the Clinton campaign staff, the issue is theability of foreign insurance companies writing business in theUnited States to cut their tax bill through reinsurancearrangements in a "tax haven."

Independently, a group of U.S. insurers led by W.R. BerkleyCorp. have renewed a decades-long effort to impose greater taxes onforeign insurers and reinsurers in the U.S. by curbing theirability to "cede" U.S. insurance premiums to low- or no-tax foreignhavens, like Bermuda.

"The Coalition for a Domestic Insurance Industry" includes AmbacFinancial Group Inc., American Financial Group Inc., BerkshireHathaway Inc., Chubb Corp., EMC Insurance Cos., MBIA Inc. andHartford Financial Services Group.

Fitch said the U.S. insurers have expanded their efforts tochallenge the Bermuda-based companies because they are mostlyolder, well-established U.S. insurance companies who "are unable torelocate to Bermuda because doing so would require them to re-valueassets and, in most cases, recognize large capital gains."

The report said the effort launched last year marked the thirdtime in the last 20 years U.S. insurers have initiated lobbyingefforts in order to curb the tax advantage of Bermuda insurers andreinsurers.

Meanwhile, the IRS last month moved to reduce the loophole byissuing guidance interpreting its existing rules as requiring a 1percent tax every time a U.S. insurance premium is re-ceded to aforeign insurer. The initial ceding also carries a 4 percenttax.