week in a bid to stop a federal excise tax (FET) increase which would seriously hit Bermuda's insurance industry.

The industry in Bermuda was caught slightly off-guard a few weeks ago when hitherto unannounced plans were tabled before a Congressional committee to increase from one percent to four percent the FET on reinsurance premiums coming from the US.

Although one senior Bermuda Government official said yesterday the chances of the proposal becoming law were slim, insurance businessmen on the Island are taking nothing for granted.

Meetings to discuss the proposal have already been held locally and a battle plan is being drawn up.

The proposed tax change would affect Bermuda-based companies who reinsure business from "fronting'' insurance carriers in the US.

At the moment, premiums for business which is insured first by a US carrier and then reinsured to Bermuda are taxed at a rate of one percent by the US Government.

Mr. Andrew Carr, president of captive manager Marsh and McLennan and a member of the Insurance Advisory Committee, said: "If this tax did go up from one to four percent it will definitely have a negative impact on a significant amount of business in Bermuda.

"It's very hard to quantify with any great certainty the degree of the impact on Bermuda.

"But it would certainly diminish the reasons for some companies being here.

It would be one more reason for companies to question whether to have their captive here in Bermuda was the right thing to do.'' Bermuda's reinsurance industry had to take this new attack seriously, even though similar threats have been defeated in the past, said Mr. Carr.

"We have to be realistic and say it's well within the capability of the US Government to pass that law and, if it did, it would have a detrimental effect on our business,'' he added.

"As the Budget deficit grows in the US and the US needs to find more and more ways of increasing revenue, the more likely it becomes they will adopt this measure.

"This is acknowledged to be an opportunity to raise revenue. For that reason alone, this type of plan rears its ugly head from time to time.'' He added: "Primary discussions and meetings have taken place here and the industry will soon decide what steps to take to minimise the chances of that happening.'' Mr. Carr said any increase in FET on foreign insurance companies would have a negative impact on businesses throughout the US, as well as in Bermuda.

"It increases the cost of providing insurance to businesses in America and would be unpopular with businesses there because it would increase the cost of running their operations,'' he said.

It is understood the proposal to increase the FET on foreign insurance companies was tagged on to an unrelated environment Bill which is in the committee stage of Congress.

Adding on unconnected items to Bills is a method commonly used in the US to try to sneak through controversial proposals.