What is seen as a growing threat to Bermuda's buoyant offshore economy is to be addressed during a high-level trip by Government to Washington D.C. in the coming months.

The stakes have been raised by the mid-term US election success of the Democrats who have traditionally been unhappy about US companies avoiding federal tax responsibilities by having headquarters in offshore, low tax jurisdictions such as Bermuda.

As reported in the Royal Gazette yesterday a grassroots campaign amongst Democrats to bring an end to US companies benefiting from such arrangements is gathering support.

Hawaii Democrat John Lundin believes the issue will reach the 2008 Democrat National Convention platform and the Presidential election debate.

He claims to personally know a number of Congress and Senate representatives in Hawaii and Florida whom he will be lobbying.

The threat of legislation being drawn up that would blow apart the advantages enjoyed by major insurance and re-insurance companies on the Island is being taken seriously by Government.

Finance Minister Paula Cox, who is currently in London, said meetings with various representatives in Washington D.C. are to take place in the near future.

And the Association of Bermuda Insurers and Reinsurers has pledged to keep up its lobbying to counter the efforts of Democrat activists seeking to change the tax rules for US-centric businesses based offshore.

President Bradley Kading said Bermuda provides 40 percent of the catastrophe insurance coverage for Florida.

"They are huge contributors to the Florida property market's needs. Anything that is anti-Bermuda tax treatment cuts into the benefits that Florida receives," he explained.

This is one of the strong arguments the ABIR has against those who seek to change the tax arrangements. Mr. Kading said any efforts to change US tax policy and create punitive tax against insurance companies headquartered in Bermuda would increase the cost to American customers who get their insurance from those companies or their US mainland subsidiaries.

Mr. Kading also points out that the 22 "class four" insurance and reinsurance companies in Bermuda who are part of ABIR, such as ACE, XL, and Montpelier Reinsurance Ltd, are "home-grown Bermuda companies that were started in Bermuda."

He said: "They operate under Bermuda underwriting entities, US underwriting entities and European underwriting entities. They are not 'escapees' from the US. They pay taxes in the jurisdictions in which they derive income."

As an example an insurance company taking business from US clients must pay excise tax to the US, and subsidiary offices of Bermuda-based companies operating in the US and Europe must pay the same taxes as other companies in those locales.

In a statement Finance Minister Ms Cox said there is a perception that Bermuda benefits from the "expatriation of profits to the so called 'low tax' jurisdictions by US companies" but said the Island's tax system is not designed or modified specifically to attract business from overseas.

The Island raises income from placing the tax burden primarily on customs duties and payroll taxes, one effect of having such a regime is that it makes the Island attractive to overseas companies, but that was not the primary purpose of Bermuda having such a tax set-up.

She also pointed out that Bermuda-based insurance companies paid out $15 billion in claims that were generated by the hurricanes of 2005, representing 29 percent of total claims that year, and in 2004 had covered 20 percent of total claims for similar events.

Ms Cox said Bermuda's tax matters are for Bermuda to decide upon, adding: "We would not presume to suggest to other countries what approach they should take to taxation and, similarly, we would not expect others to criticise our approach."