BERMUDA'S booming insurance industry is set to get a boost from terror insurance legislation passed in the US this week.

But two US consumer groups said this week the legislation amounted to a "taxpayer-funded bailout of a super-rich industry" and questioned why Bermuda companies not paying US taxes should benefit from it.

Robert Hunter, director of insurance for the Consumer Federation of America (CFA), said insurers had exaggerated the size of their financial losses incurred from the September 11 terrorist attacks and had hiked rates for types of insurance cover that carried no terror risk. And Joanne Doroshow, of Americans for Insurance Reform (AI+R), claimed insurers "had exploited 9/11 to increase their own profits".

Mr. Hunter also suggested that the fact Bermuda-based companies would gain from the new insurance law could re-ignite the "profits versus patriotism" debate, which saw US lawmakers table legislation targeting companies which had reincoporated in Bermuda to slash their tax bills.

Their comments came in the week that President George W. Bush signed the Terrorism Risk Insurance Act which provided up to $100 billion in federal backing for terrorism insurance policies.

Also this week, Bermuda's insurance companies announced impressive results for the third quarter, with increased business at the best rates seen in a decade. The many new companies set up on the island after last year's terror attacks also saw healthy business.

Mr. Hunter questioned their need for help from the US Government in providing terrorism insurance.

"If one thing is crystal clear, it is that America should not enact a taxpayer-funded bailout of this super-rich (insurance) industry," Mr. Hunter wrote in a detailed report on the terror legislation and how insurers and consumers would be affected by it.

The report showed that insurers' early estimates of what the attacks on the World Trade Centre would cost them in claims - around $70 million - were much higher than what they eventually paid out.

Claims eventually amounted to around $40 billion, the report continued, with US taxpayers picking up 35 per cent of the loss ($14 billion) in the form of a federal corporate tax write-off.

And as insurance claims on US Government buildings are paid out by the taxpayer, the terrorist attack on the Pentagon did not cost insurance companies.

The CFA report added that the insurance industry was already over-capitalised.

Since September 11, Bermuda has been hit by a wave of new insurance companies, including 26 being set up in the last four months alone, and insurers have seen an influx of billions of dollars of new capital.

Mr. Hunter argued that the new law was too generous to them and would give new legs to the "profits versus patriotism" debate.

"We see this as a very serious issue, that alien (foreign-based) companies are not paying US taxes, but can benefit from this plan which is funded by the US taxpayer," he said.

"The insurance companies predicted dire consequences after September 11, consequences that we did not see happening. We did some research and discovered that $26 billion of new capital flowed into Bermuda's insurance industry alone within months of September 11. That amount is as much as the World Trade Centre attacks cost the insurance companies after tax."

Mr. Hunter said that in the aftermath of September 11, the CFA had supported plans for US Government backing to provide terrorism insurance.

But after across-the-board increases in premiums and the influx of billions in new capital, he felt the insurance industry did not require such generous help.

"Insurers have offered absolutely no evidence to justify exposing taxpayers to significant financial risk in the event of future terrorism losses," said Mr. Hunter. "Taxpayers are already 100 per cent liable for attacks on government facilities, like the Pentagon, and 35 per cent exposed to all other terror losses (because of the corporate tax write-off rate). To go further when the private market is largely covering terrorism risks is inappropriate and wasteful."

He added that some insurers "had used the excuse of terrorism risk to hike rates in many lines of insurance that do not even have terrorism exposure", something he termed "price gouging".

Mr. Hunter gained support from AIR spokeswoman Ms Doroshow, who said: "I think there's a lot of evidence that the insurance industry has exploited 9/11 to increase their own profits and to really price gouge customers."

The new Act provides US Government backing for insurance companies in the aftermath of another attack like that of September 11. In that event, the US Government would cover 90 per cent of insurance losses exceeding a deductible, which is based on a company's premium revenue.

Many construction projects in the US, that had been stalled by a lack of terror insurance cover, will now be able to resume, creating thousands of new jobs.

But some economists said the measure would have little beneficial effect on the economy, while it could expose taxpayers to billions of dollars in claims.