The U.S. affiliates would receive offsets against this taxable income for ceding commissions, returned premiums and recoverables under the proposal. It would apply to the US subsidiaries of all non-U.S. insurers as in past.

The provision is consistent with, but not identical to, legislation dealing with the issue introduced during the last Congress in the Senate by Sen. Robert Menendez, (D-N.J.) and in the House by Rep. Richard Neal (D-Mass).

The legislation pits domestic insurers, led by W.R. Berkley and Chubb, against foreign writers, led by, but not limited to, Bermuda insurers and reinsurers. Among its critics is CEA, a European insurance and reinsurance federation.

Opponents have enlisted Swiss Re and other large European insurers and reinsurers in their fight against the tax.

R.J. Lehmann, a senior fellow at the R Street Group, a libertarian think tank, said in a statement that it “represents a protectionist and economically destructive tax that would benefit a small group of domestic insurance companies at the expense of U.S. consumers.”

Lehmann said that the costs of the proposal “far exceed the revenue it would generate, and its ultimate effect would be to drive reinsurance capital—so sorely needed in catastrophe-prone states like Florida, Louisiana, Texas and California—out of the country.”

He said in addition to making reinsurance more costly and limiting access to the global reinsurance industry, which allows catastrophe insurance to function by pooling a wide variety of different kinds of risks from around the world, the proposal is unnecessary.

Cross-border reinsurance transactions are already subject to a tariff and the Internal Revenue Service has the authority to disallow any reinsurance transactions that don't involve a genuine transfer of risk, he said.

“Targeting global insurance companies for discriminatory, punitive taxes would be disastrous for areas vulnerable to natural disasters,” said Bill Newton, executive director of the Florida Consumer Action Network, a member of the Coalition for Competitive Insurance Rates—a group created by Bermuda and other foreign insurers, and includes representatives of Gulf Coast states and the Risk and Insurance Management Society.

“Instituting this tax would significantly reduce the supply of reinsurance in the US, decrease America's ability to manage volatile, catastrophic insurance risk, and would further burden American homeowners, large and small businesses and public sector organizations during these challenging economic times,” Newton said.

But Berkley countered by saying that opponents of the proposal are “using scare tactics” to block the legislation.

He said it only affects reinsurance ceded to foreign affiliates. “It expressly does not affect third-party reinsurance—those arrangements that add overall capacity to the market by shifting risk to unrelated parties,” Berkley said.

According to the LECG group, a consulting group retained by supporters of the provision, “this fact alone causes opponents' claims regarding potential adverse effects on capacity and pricing to be untrue.”

Berkley contended that “it is highly unlikely that foreign groups will stop providing coverage in the U.S. market if they are required to pay tax like U.S. companies and compete on a level playing field.”

Even if they did, the rest of the market would quickly replace any capacity, Berkley insisted.

“Moreover, given the proposal impacts only foreign-owned groups, it would be difficult for them to effectuate a price increase unilaterally, given their market share,” Berkley said.

Further, Berkley said, “Even if opponents' claims were true (which they're not), any purported effect on pricing or capacity would arise from an unintended tax subsidy for foreign-based companies at the expense of their U.S. competitors and other U.S. taxpayers.

“Would Congress ever intentionally pass a tax incentive only applicable to foreign-based companies in order to reduce insurance prices or provide additional capacity?” he asked. “The answer is clearly no. At a time of burgeoning deficits and possible tax increases on U.S. workers and businesses, it's unfathomable that we would continue this unintended loophole allowing foreign-based insurers to avoid U.S. tax on their U.S.-based business,” Berkley said.