Americans would likely have to pay out up to $12 billion a year extra for insurance premiums if Congress passes legislation that would impose higher taxes on Bermudian and other non-US insurers.

That is the finding of a new study, carried out by economic consulting firm the Brattle Group, which says proposals in Congress that would negatively impact several major Bermuda companies would also backfire on US consumers.

The report's sponsors included the Association of Bermuda Insurers and Reinsurers (ABIR), whose president Bradley Kading has intensified lobbying efforts on Capitol Hill as the political threat to the Island's insurers has grown this year.

Adoption of the pending legislation would cause the cost of insurance coverage to rise by an average of two percent — much more in certain lines — according to the report. Particularly hard hit would be those in catastrophe-vulnerable states like Florida, California, Louisiana, Texas and New York, where insurance companies are most likely to seek backup cover from reinsurers.

The supply of reinsurance to the US would fall by between $19 billion and $22 billion, which represents 20 percent of available supply and 40 percent of all supply from outside the US, according to the report. It added that when reinsurance coverage shrinks, history shows that insurance becomes more expensive and cover may be difficult to find at all in some lines.

The report was authored by a team of insurance and economic academic experts, comprising Dr. David Cummins, the Joseph E. Boettner Professor of Risk Management, Insurance and Financial Institutions at the Fox School of Business at Temple University and the Harry J. Loman Professor Emeritus of Insurance and Risk Management at the Wharton School at the University of Pennsylvania, as well as the Brattle Group's Dr. Michael Cragg and Dr. Bin Zhou. The report's backers included Zurich, Munich Re and Swiss Re, as well as ABIR.

Legislation tabled last year by Democratic Party Congressman Richard Neal specifically targets the US subsidiaries of non-US insurers, which write insurance policies in the US and then cede some of the premiums to offshore affiliates. The portion of the premium ceded offshore is deductible from the group's US tax bill.

While reinsurance is commonly used by insurers to spread risk, Rep. Neal and his supporters claim non-US groups are using it increasingly to avoid US taxes. Similar legislation has been proposed in the US Senate, by Finance Committee chairman Max Baucus.

Of the Bermuda market, Ace, XL Capital and Arch Capital would have the most to lose from the Neal proposals, according to Citi analyst Joshua Shanker has said.

"This study confirms the fears of the nearly 40 independent experts, state government officials, business owners, and associations who publicly filed opposition letters to legislation pending in Congress," Mr. Kading said.

"This legislation imposes an unnecessary and costly tariff on companies that help spread insurance risks for consumers and businesses in areas subject to hurricanes, earthquakes, crop failures and other forms of natural disasters.

"When insurance is needed to cover billions of dollars in consumer property damage — as occurred following hurricanes Katrina and Rita — international reinsurance companies are there."

Another to have criticised the Neal bill is consumer advocate Bill Newton, executive director of Florida Consumer Action Network, who believes it would cost residents of the Sunshine State $300 million a year in higher property insurance costs.

Rep. Neal, who is expected to introduce a modified version of the bill shortly, told Dow Jones Newswire: "My bill would simply put an end to the unfair advantage these foreign entities have over American companies. There is a reason most of them have moved to Bermuda — and it's not for the tropical weather."