Bermudian insurers have set up "phony'' reinsurance deals to avoid paying United States taxes, according to the chairman of Chubb.

The American insurer is one of four companies which have been lobbying Congress to get a so-called `tax loophole' shut down which allows Bermudian insurance companies to not pay income tax on business done in the United States.

Dean O'Hare, the Chairman of the Chubb Corporation has been attending the Risk and Insurance Management Society (RIMS) conference in San Francisco.

He told The Royal Gazette in an exclusive interview that he had nothing but admiration for Bermuda as a great place for insurance companies to do business. What he said he had difficulty with was "a select'' band of insurance companies -- mainly ACE and XL Capital -- which he believes are acting illegally by moving their money out of the United States businesses by placing the capital with their reinsurance companies.

He said: "It is phony reinsurance -- they are doing it solely for the purpose of evading taxes.'' The measures have been labelled protectionism by XL and ACE has repeatedly said it does not avoid paying taxes. Both companies have said they are doing nothing illegal.

He added: "I don't want to take anything away from Bermuda, and I do not want to take anything away from legitimate transfer of resources. But what ACE and XL are doing is avoiding paying their taxes.'' Mr. O'Hare has been leading the charge of American insurers who are outraged by ACE and XL's activities since the purchase last year of large American insurers by the Bermuda insurance giants.

The American insurance companies have been crying foul that the Bermuda companies have reinsured their own business -- they claim effectively taking large chunks of money out of the United States without paying taxes.

Now a bill is before congress to make changes to the law which, the bill's supporters hope, will block this so-called loophole.

"I am very hopeful that this bill will be passed with the Treasury department attacking tax shelters. "In addition to that there is nothing to stop the Treasury department getting to the same end through regulations.

"I really think that the kind of public relations which has surrounded the whole issue by the people skimming hundreds of millions of dollars off transactions is incredible. I have been accused of fostering protectionism and nothing is further from the truth. I am not anti-free trade.'' His claim is that what ACE and XL are doing with regard to their Bermuda and United States operations is wrong.

Speaking about the in-house reinsurance contracts, he said: "They don't do it at arms length. They do it with transactions of related parties. If I have dealings with my wife, I know that they will be affected by my relationship to her, and it is impossible to deal with her objectively. The deal is not at arms length because they are moving massive amounts of reinsurance and carrying the investment income to a taxless environment.'' He said it was not fair for this to happen when his company had to pay 35 percent in taxes and his rivals did not. When pushed he admitted that because of US tax exemptions the effective tax rate was cut down to a the low 20s, but between 1996 and 1998 the tax stood at 36 percent.

"This issue for me is a bit of a hot button,'' he added.

He said that Chubb was an all-American company (with a subsidiary in Bermuda) which enjoyed paying its dues to the American nation in the form of taxes. And Chubb would not think of re-locating to an offshore jurisdiction for tax reasons.

"Chubb is an American company and has been such since 1882. We are based here. We have our home office in New Jersey and employ an awful lot of people in that state. We don't think relocating is an option unless we were forced into doing it, if it were an issue of survival. What this is is an issue of fairness. It is not in the interest of the United States and it does not make sense.''