Other offshore financial jurisdictions will also be hit if the United States Congress decides to pass legislation to ensure Bermuda-based insurance companies pay tax on business conducted on American soil, a leading US economist has said.

Robert Hartwig, the Vice President and Chief Economist at the Insurance Information Institute, said it was possible Congress will pass these kinds of laws by the end of the year.

However, he added that other jurisdictions such as Guernsey, the Isle of Man and the Cayman Islands would also be affected.

Mr. Hartwig backed up some of the views expressed by his colleague Michael Erwin, the manager of public affairs at the institute who told The Royal Gazette during a Bermuda visit last month that Congress was likely to introduce the clampdown before the end of the year.

Mr. Hartwig said: "It is possible that in the budget regulations this year that the US Congress may in fact close the loophole.'' He added: "I would be surprised if Bermuda would be singled out -- the law would probably apply to most offshore jurisdictions.'' The issue about offshore Bermuda insurance companies not paying income tax in the US has been heating up recently.

Last month the New York Times published an article stating that four American insurance companies have lobbied congress to stop Bermuda-based companies not having to pay taxes in America. The companies believe Bermuda currently has an unfair operating advantage.

Articles about the issue have also appeared in the Washington Post and in trade journals and have been closely followed by the international business community on the Island.

The move by the American insurers has been opposed by Island insurance companies and been called `protectionism' by XL.

The US insurers -- Chubb, Hartford, Kemper and Liberty Mutual -- want Congress to pass laws which will demolish the "tax shelter in Bermuda'' and stop companies based in Bermuda but actually operating in the US avoiding certain taxes in America.

The companies also said tax benefits on the Island discriminated against fair competition in the United States.

The article opened: "A half-dozen American insurance companies have begun exploiting a loophole in federal tax law.

"By simply moving their headquarters to Bermuda or being acquired by a Bermuda insurer, they no longer have to pay income taxes.'' The article said the tax `loophole' is legal and singled out ACE and XL as "thorns in the side of American insurers''.

Tax law `will affect all jurisdictions' Mr. Hartwig said: "Traditionally there is a bit of give and take between the Republicans and the Democrats and the president, and each has its own wants and needs.

"One way to satisfy everyone is to find a source of revenue and items like this allow a way of getting funds without cutting anything. It is a way to increase tax revenue to compensate for other expenditure.'' The US concern is that if all American property and casualty insurers followed by moving to Bermuda, they could shelter some $40 billion a year based on recent profits, avoiding $7 billion in taxes annually.

And this would mean that the US Treasury would be deprived of four cents of every dollar in income taxes now collected from corporations of all kinds and said state governments were also losing money. The New York Times also pointed at the recent decisions made by Everest Reinsurance Holdings and PX Re, both New Jersey companies, the Trenwick Group of Connecticut and the White Mountain Insurance Group to move to Bermuda.

The four objecting insurers, the article said, realised that it would be enormously expensive for older companies like theirs to make use of the shelter because of other tax requirements, so they have gone to Congress to turn in their competitors.

The article says the Bermuda "tax shelter'' is a legal loophole that had been unused until last year.

The article said: "The Bermuda tax shelter is unique to the property and casualty insurance business, which took in an estimated $287 billion in premiums last year to cover homeowners, drivers, corporations and small businesses.'' BUSINESS BUC