There are supporters of Bermuda's low tax structure within the insurance industry in the United States itself despite a move by giants Chubb-Hartford, to have Congress pass a special protectionist code called H.R. 4192.

H.R. 4192 would see investment income earned by insurance and reinsurance companies domiciled in the US with head offices outside the US, taxed on that income at the US "safe harbour'' rate.

An article by Jon Harkavy, featured in the May edition of Business Insurance, a leading trade magazine for the insurance industry, strongly takes Bermuda's side. Mr. Harkavy represents the Coalition of Alternative Risk Funding Mechanisms (CARFM), whose members include, the Hawaii Captive Insurance Association, the Captive Insurance Company Association, the Illinois Captive & Alternative Risk Funding Insurance Association, the Vermont Captive Insurance Association, the Colorado Association of Captive Entities and the National Risk Retention Association.

In a hard hitting article, Mr. Harkavy contends that the bill is likely to create more problems that it will solve.

"H.R. 4192 may likely ignite a trade war that would create not a level playing field but a minefield threatening the operation of the international reinsurance marketplace crucial to the industry in achieving spread of risk and ultimately solvency.'' He notes that the protectionist move on the part of Chubb-Hartford assumes that companies are making huge profits and points out that if and when they are actually in a loss situation the Treasury would actually loose as well.

"Given the realistic scenario that the business ceded to an offshore affiliate may be unprofitable, Treasury is spared a portion of losses which could otherwise be deducted by the US affiliate, while the solvency and capacity of the ceding affiliate is strengthened by the interaffiliate reinsurance cession.'' The main argument by the Chubb-Hartford group that Bermuda presents an unlevel playing field by luring away businesses that would have to pay US taxes, through offering a lower tax rate in Bermuda, is shot down in Mr. Harkavy's article.

He notes that the move could see jurisdictions with higher tax rates than the US follow suit to their advantage.

"Would not any foreign nation that taxes its own domestic insurers at a higher rate than the United States be justified in imposing either directly or indirectly, its taxes on domestic affiliates of US insurers, or, worse still, on all cessions between their domestics and US insurers /reinsurers?'' And Mr. Harkavy suggests that the move could also increase the cost of insurance., "While H.R. 4192 is a protectionist boon to certain US insurers, its enactment may, in the short term, hike premiums and, in the long run, would deny consumers needed leverage.'' Holding that jurisdictions like Bermuda should not be penalised for the smart thinking of their governments "that a lower level of taxation on insurers is the best means to promote capacity and solvency for the industry'' Mr. Harkavy said the point makes the industry's "recurring lament that it is misunderstood, ring hollow''.

As a final point Mr. Harkavy contends that the American Internal Revenue Service (IRS) "has substantial tools at hand to deal with any abuse'' of the US taxation laws.

"The transfer pricing rules of Internal Revenue Code Section 482 allow the IRS to `distribute, apportion, or allocate gross income, deductions, credits or allowances between or among (related parties) if (the Commissioner) determines that such distribution, apportionment, or allocation is necessary in order to prevent evasion of taxes or clearly to reflect the income' of the related parties.''