A controversial tax proposal targeting non-US reinsurers has a “reasonably good” chance of being pushed through Congress this year, according to one of the move’s key supporters.

William Berkley, chairman of US insurer WR Berkley Corp. and spokesman for the Coalition For A Domestic Insurance Industry, said an affiliated reinsurance proposal mentioned by the Obama administration in its 2011 budget proposal, is gaining “additional momentum”.

The proposal, which is similar to a bill put forward in 2008 by Representative Richard Neal, aims to limit tax deductions for reinsurers that cede a large portion of their US premiums to offshore affiliates.<

If enacted, the move would impact some Bermuda-based insurance companies with US subsidiaries.

Earlier this month, a European Union official criticised the proposal as discriminatory and a potential violation of international trade agreements in letters sent to several US officials, including Treasury Secretary Timothy Geithner.

At a press lunch in New York yesterday, Mr. Berkley said the measure would not violate trade rules because under the proposal, foreign reinsurers would have the option to elect to be taxed as a US company.

Mr. Berkley said that recent lobbying efforts had produced some success in persuading lawmakers of the “competitive disadvantage” US insurers face under the current system, he said.<

“We think there’s a reasonable chance that it will see the light of day” and be pushed through Congress this year, Mr. Berkley said during the luncheon.

In its latest revenue estimates, released earlier this month, the US Joint Committee on Taxation estimated the proposal would raise $16.9 billion over a decade.

Opponents of the proposal, including the Association of Bermuda Insurers and Reinsurers (ABIR), the Risk & Insurance Management Society, view the tax as punitive and argue any such measure would dramatically cut reinsurance capacity and increase rates, particularly in catastrophe-prone areas.

The Obama proposal would impact reinsurers in all non-US countries, but Mr. Berkley singled out Bermuda.

He said there had been “an avalanche of reinsurers” in Bermuda after Hurricane Andrew, which caused widespread devastation and a dislocation in the property-catastrophe insurance market in 1992.

Mr. Berkley said these companies had expanded into writing insurance business directly by setting up subsidiaries in the United States “in direct competition with US companies”, and reinsured this business to their Bermuda reinsurance affiliates, “paying no taxes” on it.

In fact, Bermuda companies do pay US excise tax at a rate of one percent on these transactions.

Mr. Berkley added: “This has nothing to do with arms-length reinsurance” provided to unaffiliated third parties.

”We buy most of our reinsurance from offshore reinsurers,” he said. “It has everything to do with them setting up direct writing insurance companies” that have an unfair competitive tax advantage.