Bermuda insurers operating in the US could face the threat of higher taxes on their business after a controversial bill was introduced in the House of Representatives late on Thursday.

If passed, the legislation, which was introduced by Representative Richard Neal (Democrat, Massachusetts), chairman of the Subcommittee on Select Revenue Measures of the House Ways and Means Committee, would raise the effective US tax rate for the Island's insurance companies with subsidiaries in the US.

In a statement released the same day, The Coalition for Competitive Insurances Rates (CCIR), which includes the Association of Bermuda Insurers and Reinsurers (ABIR) as a member, blasted the bill as "anti-consumer and anti-competitive" and said it would drive up insurance rates for consumers by reducing competition and critical US insurance capacity.

The broad-based alliance group aimed at assuring competitive insurance costs and insurance availability for American consumers, claimed similar legislation introduced by Rep. Neal in the 110th Congress was met with opposition by consumer organisations and businesses that rely on affordable insurance coverage.

"We urge members of Congress to reject this legislation, as they have twice before," said Bradley Kading, president of ABIR.

"Only a handful of very large, very profitable US insurance companies would benefit from this bill. In contrast, the economic data make clear that American consumers and businesses would pay a steep price if Rep. Neal's proposal becomes law. This legislation represents a punitive and unnecessary tax aimed at benefiting some competitors at the expense of others."

CCIR, which has submitted three letters to Congress in recent years in opposition to what it regards as "discriminatory reinsurance tax proposals", said Rep. Neal's bill would "significantly increase taxes on all foreign insurers who have US subsidiaries and who provide vital insurance and reinsurance coverage to Americans".

It added that the US insurance market depends heavily on a worldwide network of foreign and domestic reinsurance companies in order to meet the country's insurance capital needs, best illustrated by the fact that approximately two-thirds of all reinsurance required to protect US consumers and businesses against natural disasters is provided for by non-US reinsurers.

Specifically, the legislation would disallow deductions for excess reinsurance premiums with respect to US risks paid to affiliated insurance companies that are not subject to US tax.

Rep. Neal said the excess amount would be determined by reference to an industry fraction, by line of business, which will measure the average amount of reinsurance sent to unrelated parties by US companies.

He said the bill "allows foreign groups to avoid the deduction disallowance by electing to be treated as a US taxpayer with respect to the income from affiliate reinsurance", adding that it restores a level playing field, treating US insurers and foreign-based insurers alike.

The legislation, which still has a number of further stages to go through before it is passed, also provides Treasury with the authority to carry out or prevent the avoidance of the provisions of the bill, Rep. Neal said in a statement on the House floor.