Controversial legislation that would bar foreign-owned insurersfrom moving their U.S. earnings into so-called "tax havens" througha reinsurance transaction with an offshore affiliate was introducedlate last month in the House of Representatives.

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The bill–H.R. 3424, introduced by Rep. Richard Neal, D-Mass.,who chairs the Subcommittee on Select Revenue Measures of the HouseWays and Means Committee–prompted a flurry of responses from groupsand individuals on both sides of the issue.

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Opposing the bill is the Coalition for Competitive Insurance Rates, which includesBermuda insurers and members of the Risk and Insurance ManagementSociety. In a statement, the coalition said the bill "would driveup consumer insurance rates by reducing competition and criticalU.S. insurance capacity."

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"When Rep. Neal introduced similar legislation in the 110thCongress, consumer organizations and businesses that rely onaffordable insurance coverage joined in opposing passage," thecoalition noted.

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But William R. Berkley, chair and chief executive officer of theW.R. Berkley Corp. in Greenwich, Conn., said in an interview thatin criticizing the legislation, "Bermuda reinsurers are using scaretactics."

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He observed that the United Statesrepresents almost half of the property and casualty insurancepremiums written in the world. "These people with all this capitalare not going to close their companies" if such a bill passes, hepredicted.

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Regarding the claim that the legislation would make it moredifficult and expensive to provide insurance in catastrophe-proneareas, Mr. Berkley said Bermuda insurers primarily write casualtyinsurance, not property, and then reinsure it offshore with anaffiliate. "This does not involve property insurance used to insurehomes and businesses," he said. "Bermuda people are just trying toconfuse the issue."

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Mr. Berkley also said he has become involved because offshorebusiness has evolved from a small component of the p&c industryto a much larger percentage–roughly $35 billion of direct premiumswritten in the United States. "And, it is growing at a substantialrate," he noted.

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Specifically, the legislation would disallow deductions forexcess reinsurance premiums with respect to U.S. risks paid toaffiliated insurance companies that are not subject to U.S. tax.Rep. Neal said the excess amount will be determined by reference toan industry fraction, by line of business, which will measure theaverage amount of reinsurance sent to unrelated parties by U.S.companies.

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He said the bill "allows foreign groups to avoid the deductiondisallowance by electing to be treated as a U.S. taxpayer withrespect to the income from affiliate reinsurance."

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Thus, he said, the bill merely restores a level playing field,treating U.S. insurers and foreign-based insurers alike. Thelegislation provides Treasury with the authority to carry out orprevent the avoidance of the provisions of this bill, Rep. Nealsaid in a statement on the House floor.

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But critics of the legislation disagreed.

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"Legislation that encumbers the free market movement and thetransfer of risk that are vital to a sound global insurance andreinsurance community will adversely affect America's commercialinsurance purchasers," said Joseph Restoule, president of RIMS aswell as leader of risk management at NOVA Chemicals Corp.

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"A free and fair marketplace enables the insured and insurers toseek innovative and affordable alternatives to manage risk,"according to Mr. Restoule. "This legislation would drive up thecost of insurance for America's commercial insurance consumers byreducing competition."

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Opponents of the bill say the legislation is especiallyunnecessary because foreign-based insurers are already subject to aU.S. insurance excise tax, and their U.S. subsidiaries also payU.S. income taxes.

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"Rep. Neal's bill is a protectionist measure that will hurtAmerican consumers," said Eli Lehrer, a senior fellow with theCompetitive Enterprise Institute. "It's likely to send insurancerates soaring for the very consumers who can least afford big rateincreases right now."

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