Sen. Max Baucus, D-Mont., chair of the Senate Finance Committee, last December issued an exposure draft of legislation that would close the loophole as a way of gauging public support. But most of the commentators who responded voiced opposition to changing current law.

The report–titled "The Impact on the U.S. Insurance Market of a Tax on Offshore Affiliate Reinsurance: An Economic Analysis"–found that legislation to increase taxes on non-U.S. reinsurers would reduce the supply of reinsurance by 20 percent, cost insurance consumers more than $10 billion per year and be particularly onerous for disaster-prone states.

"Past evidence in insurance markets indicates that when reinsurance capacity is reduced, consumers will find it difficult to obtain insurance in certain classes of business," the study concluded.

Current law allows domestic insurers to cede reinsurance to their foreign affiliates with no penalty or cap. The report said ending this stipulation would reduce the supply of primary insurance by 1.8-to-2.1 percent in the United States and increase the price of primary coverage by more than 16 percent in some lines of business.

The report was commissioned by the Coalition for Competitive Insurance Rates, which includes RIMS, ACE, Allianz Insurance Group and Zurich Insurance.

"The report is a clarion call to members of Congress and the administration who might support such legislation under the guise of protecting American insurers," said Deborah M. Luthi, a member of the RIMS board of directors and director of enterprise risk management services at Matheson.

"RIMS believes this report provides well-documented evidence of the detrimental impact to the global insurance market, domestic property and casualty insurance market, insurance consumers, and several states that may be prone to one or more natural disasters," she added.

"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," according to Bradley Kading, president and executive director of the Association of Bermuda Insurers and Reinsurers.

"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," he added.

However, the U.S. Coalition charged that the study reached "erroneous conclusions."

The coalition–led by W.R. Berkley Corp., Chubb Corp. and the Hartford Insurance Group–said conclusions that a tax change would be punitive to foreign insurers and adversely affect the U.S. insurance marketplace "are untrue and do not reflect marketplace realities."

The group said the proposed Neal bill does not penalize any market participant and "merely seeks to level the playing field by taxing foreign-owned groups writing direct insurance business in the U.S. similar to the way domestic insurers are taxed."

The coalition said the proposed Neal bill "expressly provides an election to be taxed identically to a U.S. company with respect to such business. There is nothing punitive or unfair about the uniform treatment of all insurers writing business in the U.S."

The Brattle Group report was written by J. David Cummins, professor of risk management, insurance and financial institutions at Temple University's Fox School of Business and professor emeritus of insurance and risk management at the University of Pennsylvania's Wharton School of Business, along with Michael Cragg and Bin Zhou, principals and senior consultants at the Brattle Group.