A US Congressional sub-committee will hold a hearing tomorrow to decide whether to tighten up rules on tax deduction taken by insurers who cede premiums to overseas affiliates, including reinsurers - ultimately impacting Bermuda's insurance industry.

Sam Leaman, an analyst at Washington Analysis, which advises institutional investors on legislative issues, acknowledged that the hearing is a necessary prelude to tightening rules on premiums ceded to overseas affiliates.

Domestic property and casualty insurers have lobbied Congress on the issue for more than a decade.

The hearing will be held by the Select Revenue Measures Subcommittee of the House Ways and Means Committee.

The panel is chaired by Representative Richard Neal (Democrat - Massachusetts), who has advocated for several years that the rules should be tightened on the ceding of premiums.

Rep. Neal has introduced legislation in the House, HR 3424, that would tighten the rules considerably.

And the Obama administration has also proposed in its 2011 budget that the rules be tightened, although the Joint Committee on Taxation "scores" the Neal bill as raising $17 billion in new revenue over 10 years, while projecting that the Obama administration's plan would raise only $2.5 billion in revenue over that period.

Those testifying will include Stephen Shay, deputy assistant secretary of the Treasury for international tax affairs; William Berkley, chairman and CEO of the W.R Berkley Corporation; John Degnan, vice-chairman and chief operating officer, the Chubb Corporation; and Sean Shaw, insurance consumer advocate at the Florida Department of Financial Services.

Mr. Berkley and Mr. Degan are supporters of the tax, which Berkley and Chubb have long contended place domestic insurers and reinsurers at a disadvantage when competing with overseas insurers, especially those based in tax havens like Bermuda.

Meanwhile the Coalition for Competitive Insurance Rates (CCIR) has warned that consumers can expect to pay billions of dollars in higher insurance premiums if the legislation is passed.

CCIR, a group of business organisations, consumer advocacy groups, insurers and their associations, revealed that in an update to a study published in 2009, economic researchers at The Brattle Group have determined that HR 3424 would cost consumers even more than initially feared.

According to the study written by Dr. David Cummins, the Joseph E Boettner Professor of Risk Management, Insurance and Financial Institutions at the Fox School of Business at Temple University and the Harry J Loman Professor Emeritus of Insurance and Risk Management at the Wharton School at the University of Pennsylvania, and The Brattle Group's Dr. Michael Cragg and Dr. Bin Zhou, HR 3424 would:

• Cost consumers an additional $11 to $13 billion per year to maintain their current insurance coverage.

• Significantly weaken competition and reduce reinsurance capacity in the US by 20 percent.

• Reduce supply and increase prices disproportionately on those states most vulnerable to catastrophic losses, such as California, Florida, New York and Texas.

• Increase home insurance costs for Floridians alone by $266 million, up from the 2009 Brattle Group analysis showing a $66 million cost increase for Florida's consumers.

• Raise home insurance costs in Texas by $112 million and by $28 million in Louisiana.

• Make it more difficult for businesses to obtain insurance.