"Bermuda is a major player and a good player in the insurance industry.

Vermont is not in battle with it or any of the other domiciles...anything negatively affecting Bermuda would also have a negative impact on Vermont.'' -- Vermont insurance official Mr. Leonard Crouse.

ORLANDO -- Offshore insurance domiciles like Bermuda will come under a three-pronged legislative attack this year that could significantly hurt the industry.

After recently losing the latest round of the battle to be exempted from US anti-fronting laws, offshore domiciles now have to face two proposed bills planned by Democratic congressmen, according to insurance specialists at RIMS.

Perhaps the most significant of these is a renewed attempt to increase the rate of Federal Excise Tax (FET) on insurance premiums ceded to offshore domiciles from one to four percent.

The change was tagged onto an energy bill in the US Congress last year but was not passed due to a disagreement between its sponsor, chairman of the powerful House Ways and Means committee Rep. Dan Rostenkowski and the Senate Finance Committee over how the extra revenue, expected to top $350 billion annually, should be spent.

Rostenkowski is now expected to reintroduce the proposed FET increase later this year as part of a foreign tax bill as Congress seeks to raise extra revenue to fund its policies.

The other major piece of legislation of concern to Bermuda is a federal insurance bill proposed by Rep. John Dingell, chairman of the House Commerce Committee.

Dingell is seeking to establish a body to be called the Federal Insurance Solvency Corporation (FISC) to establish tough solvency standards for all entities involved in inter-state commerce.

Mr. John Harkavy, an attorney with Vermont Insurance Management Ltd., said both onshore and offshore captive insurers could fall under the net of the proposed FISC.

"It can be argued that even offshore captives are engaging in inter-state commerce because they are reinsuring risk from the US,'' he said. "Captives may have to become federally certified reinsurers to carry on as they are.

"There will be higher standards which certain offshore captives could not meet under the bill. It is of widespread concern since it might be harder for fronting carriers to get credit for reinsurance ceded if the Bermuda captive cannot qualify.'' Like the National Association of Insurance Commissioners' proposed anti-fronting legislation, the Dingell bill could lead to significantly higher costs for offshore captives in meeting tighter reporting requirements.

Although this could lead to extra business for US-based captives which are being exempted from the anti-fronting legislation, the legislative changes are not being welcomed by US domiciles.

Mr. Leonard Crouse, director of captive insurance at the Vermont Department of Banking, Insurance and Securities, said the planned measures are bad for the industry as a whole, even though Vermont may pick up extra business because of it.

"Bermuda is a major player and a good player in the insurance industry,'' he said. "Vermont is not in battle with it or any of the other domiciles because we are interlinked.

"A lot of Vermont captives reinsure risks to Bermuda so anything negatively affecting Bermuda would also have a negative impact on Vermont. There's no reason why Bermuda should not be exempted from the anti-fronting legislation, as the US domiciles are.'' Ms Kathleen Walters, chairwoman of RIMS Governmental Affairs Committee, said she believed that when the constantly changing fronting measures are completed, offshore domiciles will not be exempted.

"That is my gut feeling,'' she said. "If that happens, then the costs of offshore captives is going to go up significantly because of the extra work involved with complying with tighter regulations.'' Under the NAIC regulations, any fronting carrier found to be in violation of its reporting measures can be prevented from ceding premiums back to offshore domiciles like Bermuda and can have letters of credit called upon.

"This would be a last resort measure,'' she said. "Fronting carriers would be given every opportunity to remedy any deficiencies.'' Ms Walters said much of the proposed legislation is misguided because captives have not been a major problem as far as company insolvencies are concerned.

She added: "Our success in getting some of these measures altered depends on the strength of our collective lobbying effort from all those in the industry.''