will ensure Bermudian insurance companies pay tax on business conducted on American soil, according to a leading insurance expert.

Michael Erwin, the manager of public affairs at the Insurance Information Institute in the United States, spoke to The Royal Gazette on a visit to Bermuda yesterday.

He said that both Bermuda and the United States each had good arguments for their cases, but thought that pressure on the US Government would mean swift action by Congress to close the so-called `loophole'.

"If one piece of legislation goes through this year, it will be that of the Bermuda tax,'' said Mr. Erwin.

"I hope that the insurance industry can work it out themselves before this.

It is a slow legislative year because it is an election year. But Congress will put this through quickly because of the IRS -- the Inland Revenue Service.'' The issue about offshore Bermuda insurance companies not paying US taxes has been heating up since two weeks ago when the New York Times published an article stating that four American insurance companies have lobbied congress to stop Bermuda-based companies not having to pay taxes in America they believe it gives them an unfair operating advantage. Articles about the issue have also appeared in the Washington Post and in trade journals.

The move has been opposed by Island insurance companies and been called `protectionism' by XL.

The US insurers -- Chubb, Hartford, Kemper and Liberty Mutual -- want Congress to pass laws which will demolish the "tax shelter in Bermuda'' and stop companies based in Bermuda but actually operating in the US to avoid paying certain taxes in America.

The companies also said tax benefits on the Island discriminated against fair competition in the United States.

The article opened: "A half-dozen American insurance companies have begun exploiting a loophole in federal tax law.

"By simply moving their headquarters to Bermuda or being acquired by a Bermuda insurer, they no longer have to pay income taxes.'' The article says the tax `loophole' is legal and singled out ACE and XL as "thorns in the side of American insurers''.

Mr. Erwin said that the solution to the American gripes would be to tax the Bermuda-based insurers the same way that European insurers were taxed.

This would not be at the same rate as American corporations, but would still cut back on profits of companies set up on the Island. Mr. Erwin said: "I do not feel that any Bermuda company is doing anything wrong - Bermudian companies have done nothing illegal or shifty and in the US, companies are stating their position about the tax issue.

US likely to close tax `loophole' "I believe that the legislation will make the Bermuda companies more like those in Europe.

"English and German companies that have a stake in the US all pay so much in US taxes, and this appears to be what the Bermuda tax will resemble.

"The European companies continue to do business in the US and around the world and have survived. Hopefully the same will happen in Bermuda. Bermuda is an extremely strong insurance market.'' The US concern is that if all American property and casualty insurers followed by moving to Bermuda, they could shelter some $40 billion a year based on recent profits, avoiding $7 billion in taxes annually.

And this would mean that the US Treasury would be deprived of four cents of every dollar in income taxes now collected from corporations of all kinds and said state governments were also losing money.

The New York Times also pointed at the recent decisions made by Everest Reinsurance Holdings and PX Re, both New Jersey companies, the Trenwick Group of Connecticut and the White Mountain Insurance Group to move to Bermuda.

The four objecting insurers, the article said, realise that it would be enormously expensive for older companies like theirs to make use of the shelter because of other tax requirements, so they have gone to Congress to turn in their competitors.

The article says the Bermuda "tax shelter'' is a legal loophole that had been unused until last year.

"The Bermuda tax shelter is unique to the property and casualty insurance business...'' BUSINESS BUC