WASHINGTON--U.S. Sen. Hillary Clinton's announcement that if elected 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 eliminating the tax advantage she said foreign insurers have in the United States in a campaign statement issued this week.

But Brad Kading, president and executive director of the Association of Bermuda Insurers and Reinsurers, said in a statement that "it is a myth that there is a U.S. tax loophole that exists to benefit non-U.S. insurers."

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

Fitch analysts said in the report that "the political maneuvering required to pass legislation altering the current tax system is extensive, and unlikely to occur in thenear term."

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

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

Fitch said it believes Washington's reluctance to give up tax revenue makes it even more unlikely that legislation would be passed to reduce taxes on U.S. reinsurers and insurers to level the playing field between them and their Bermuda-domiciled competitors.

Classifying her plan as an "insourcing" agenda, Sen. Clinton late Wednesday proposed a wide range of initiatives to create $7 billion a year in new tax benefits and investments for firms that create U.S. jobs, and to help domestic insurers by cutting what the statement 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 is elected."

The tax "myth," said Mr. Kading, "is recognized by U.S. business and consumer groups which have helped us beat back recent efforts by a handful of very large U.S. insurers that are advocating anti-competitive legislation intended to generally disadvantage non-U.S. insurers competing in the U.S. market," Mr. Kading said.

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

He explained that in the last seven years, Bermuda insurers and reinsurers have paid more than $25 billion in U.S. property catastrophe claims alone. "Our companies benefit U.S. consumers enormously," he added.

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

According to the Clinton campaign staff, the issue is the ability of foreign insurance companies writing business in the United States to cut their tax bill through reinsurance arrangements in a "tax haven."

Independently, a group of U.S. insurers led by W.R. Berkley Corp. have renewed a decades-long effort to impose greater taxes on foreign insurers and reinsurers in the U.S. by curbing their ability to "cede" U.S. insurance premiums to low- or no-tax foreign havens, like Bermuda.

"The Coalition for a Domestic Insurance Industry" includes Ambac Financial Group Inc., American Financial Group Inc., Berkshire Hathaway Inc., Chubb Corp., EMC Insurance Cos., MBIA Inc. and Hartford Financial Services Group.

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

The report said the effort launched last year marked the third time in the last 20 years U.S. insurers have initiated lobbying efforts in order to curb the tax advantage of Bermuda insurers and reinsurers.

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

Special Reports /

Clinton Tax Plan Off The Mark, Bermuda Insurers Say

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