The Neal bill contradicts international trade principles and amounts to "an isolationist market tariff for insurance in the US", a spokesperson for the Bermuda insurance industry told delegates at an industry conference this week.

Bradley Kading, president of the Association of Bermuda Insurers and Reinsurers (ABIR), told delegates at the Society of Insurance Financial Management conference at the Fairmont Southampton, that the proposed legislation would create a capital shortfall in the industry that would effectively raise premiums for US consumers.

"People understand that the Neal bill is the first round in a long fight over US tax policy," Mr. Kading said. "Therefore we have to prepare our defences."

The bill tabled by Massachusetts Democrat Richard Neal targets non-US insurance groups with subsidiaries in the US. Firms that write insurance policies in the US and then cede some of the risk to an offshore affiliate reinsurer can effectively cut their US tax bill.

Rep. Neal, who has the support of a group of US insurance companies who are demanding a "level playing field", wants to see those ceded premiums taxed.

"This is the third time in 25 years that we've seen an effort to introduce this kind of legislation," Mr. Kading said.

"What's different this time is that one party (the Democratic Party) is in control of all three branches of government. Also, now there is a mad scramble for tax dollars wherever they can find them."

Mr. Kading said the proposal amounted to a tax on capital - the same foreign insurer capital that has underpinned the insurance of US interests over the years.

A report on the economic impact of the bill, commissioned by non-US insurers and authored by the Brattle Group, concluded that US reinsurance capacity would fall 20 percent and US annual insurance costs would rise between $10 billion and $12 billion.

The bill would "run counter to US cross-border trade initiatives", Mr. Kading added. It would impose a tax on capital that had served to underpin the insurance of US interests over the years.

For example, 47 percent of claims arising from 2005 hurricanes Katrina, Rita and Wilma were paid by non-US insurers. Also, 93 percent of private reinsurance for Florida, the most hurricane-prone US state, comes from non-US companies.