States would first have to waive their rights to financial secrecy under Bermudian law if a proposed US Bill is approved.

That is one of the more significant effects on off-shore domiciles of a Bill being put through Congress by Republican John Dingell, chairman of the House Commerce Committee.

The pros and cons of the proposed Bill, known as HR 1290, were outlined yesterday by Mr. Burleigh Arnold on the opening day of the Seventh International Reinsurance Congress, which is being held at the Princess Hotel, Pembroke.

As Special Deputy Receiver of Transit Casualty, one of the largest ever insolvent casualty and property insurance firms in the US, Mr. Arnold has first hand experience of the type of company collapse which proposed legislation is intended to help prevent.

Under HR 1290, US Federal regulators would be allowed to come to off-shore centres like Bermuda and examine a company's books and records if there was "good cause'' for concern for its financial condition, said Mr. Arnold.

Off-shore companies would also have to appoint an agent in the US upon whom may be served any legal process and who would have to "submit to the jurisdiction of any US court or state court of competent jurisdiction''.

The proposed Dingell legislation is part of a "winner take-all'' battle being fought by US Federal and state bodies over who should regulate the insurance industry, said Mr. Arnold.

The outcome of the fight has widespread ramifications for both domestic and foreign-based insurers and reinsurers, particularly those in Bermuda, which are mostly American-owned.

Apart from the unwanted uncertainty caused by the proposals, off-shore insurers and reinsurers doing business in the US could face significantly higher operating costs if they have to comply with tighter regulations.

Mr. Arnold said a fear of a US Savings and Loan-type disaster happening in the insurance industry was one of the driving forces behind moves to have the industry regulated by the Federal government instead of the different states, who regulate it at present.

"The Savings and Loan disaster had by early 1992 cost the US Treasury and tax-payers about $150 billion and the ultimate S&L losses may reach $500 billion,'' he said.

"This has provided significant emphasis for Federal Insurance Regulation supplanting state regulation.'' Some American observers believe the insurance industry to be teetering on the brink of a huge collapse, said Mr. Arnold.

He referred to a New York Times editorial published in December, 1990, which stated: "As 1990 draws to its gloomy close, the landscape is littered with the fallen idols of American finance ... now a new candidate emerges from an unlikely quarter: the insurance industry with its $1.9 trillion in assets.

Once synonymous with the utmost fiscal prudence, insurers themselves are at risk.'' There are currently two proposed Bills to federalise the industry: the Dingell proposal and another brought to the House of Representatives by Senator Howard Metzenbaum.

Congressman Dingell's HR 1290 Bill was widely considered to have the better chance of being passed, said Mr. Arnold.

The aim of the 254-page Bill is to "ensure the financial soundness and solvency of insurers, and for other purposes'', he said.

"The essence of HR 1290 is that it creates a Federal Commission composed of five members appointed by the President with advice and consent of the Senate, which is given broad authority to create an agency that federalises insurance regulation in the US.

"The Commission promulgates all the rules and regulations for setting up financial criteria for licensing domestic and foreign insurers/reinsurers.

"Once an insurer/reinsurer, domestic or foreign, is licensed, they may engage in inter-state insurance business and need only to comply with state regulations and laws in a further few areas.

"The Commission has the power to investigate all insurers and reinsurers and to discipline them if necessary after notice and a hearing by either suspending their authority or revoking their certificate to do business.

"The Federal Commission will give property/casualty, life, health insurers/reinsurers the right to do business anywhere in the US after obtaining a Certificate of Solvency and, in cases where a company desires to primarily engage in reinsurance, they would also have to obtain a Professional Reinsurance Certificate.'' He added: "Essentially what will happen if HR 1290 becomes law in the US is that the states will be left with the policy rate power and a few other tasks but nothing to do with solvency issues.

"The Federal Commission created under the provisions of HR 1290 would pre-empt all solvency-financial-rehabilitation-liquidation matters except for those companies who choose to be licensed only by an individual state.

"Even in those instances, the state must follow Federal rules and regulations concerning solvency.'' Another effect of HR 1290 would be the requirement of each certified insurer to be a member of the National Insurance Protection Corporation which, in effect, is a national guarantee fund along the lines of the United Kingdom's Policy Holder Protection Act. PHOTO The above charts reveal the full extent of the new insurance and reinsurance capital which has arrived in Bermuda over the last 12 months and indicate the current capital and surplus of Bermuda's property catastrophe and excess liability companies. Of the companies highlighted, ACE, XL and CODA were formed in the mid-1980s, Mid Ocean was formed in November, 1992, and the rest have been set up since the middle of this year. More new multi-million dollar company formations are expected before the end of 1993.