From CNN Money.com:
Senate Finance Committee staff Wednesday sought comment on draft legislation that would tax related-party transactions by Bermuda-based insurance companies.
U.S. insurers including W.R. Berkeley Corp. (WRB), the Chubb Corp. (CB), and the Travelers Companies (TRV) have long charged that the Bermuda firms avoid taxes on their U.S. business by reinsuring the risk to the Bermuda parent.
The U.S. subsidiaries of firms including the ACE Group (ACE) and XL Capital Ltd. (XL) can then deduct the reinsurance premiums, lowering their U.S. tax liability. The Bermuda affiliate doesn't pay U.S. tax on the premium, while earning investment income subject to little or no tax.
"Thus, it is an efficient way of significantly reducing U.S. tax without transferring risk," according to a Finance Committee statement accompanying the draft legislation.