Plans for a change in US tax rules that could have driven more captive insurance companies to Bermuda have been scrapped.

US tax authority the Internal Revenue Service (IRS) had proposed to prohibit captive insurance companies from deducting from their corporate taxes the value of reserves they had set aside to pay claims.

Bermuda, which is already the number one captive domicile in the world, could have been gifted a further competitive advantage by the US, had the change been made.

Vociferous oppositon to the plan came from the state of Vermont, which is the third largest captive domicile. Vermont's congressional delegation and Governor Jim Douglas objected. "IRS officials listened, and they were willing to pull back an overly broad rule change that did not make sense for self-insuring companies," US Senator Patrick Leahy said in a written statement.

Captive insurance companies are wholly owned subsidiaries of corporations that provide property loss, casualty, and liability insurance to the corporate parent. Effectively, they are set up by corporations to provide self-insurance.

The industry accounts for about 1,400 high-paying jobs in Vermont, and last year it accounted for $22.8 million in state taxes.

Industry officials in Vermont feared that if the changes were enacted, the insurance companies might reduce their Vermont presence.

"This is a crucial win for Vermont business and for well-paying Vermont jobs," US Representative Peter Welch said.