WASHINGTON — Eyeing new sources of revenue, the Senate Finance Committee is considering legislation that would close what some say are loopholes in the law that allow reinsurance companies and hedge funds to avoid taxes by setting up headquarters offshore. The panel heard conflicting testimony at a hearing yesterday, with one American insurance executive claiming the law gave some firms an unfair advantage while a Bermuda-based reinsurance company executive disputed that assertion and argued that a proposed tax hike would hurt American businesses and consumers.

The proposal is one of a variety of tax revisions percolating on Capitol Hill that could have farreaching implications for Wall Street.

The chairman of a Greenwich, Conn.-based insurer, W.R. Berkley Corp., told the Senate committee yesterday that measures currently in the tax code allowing reinsurance companies to set up overseas — principally in low-tax locations like Bermuda or the Cayman Islands — provide “a significant unfair competitive advantage” to those firms. “If left unchecked, this could cause much more of the U.S. insurance capital base to migrate abroad and ultimately could threaten the future of our domestic insurance industry,” the chairman, William Berkley, said in prepared testimony.

But a representative of the reinsurance industry warned against making changes that could hurt firms that helped to soften the blow on American insurers inflicted by a spate of catastrophes in the last six years, from the World Trade Center terrorist attacks in 2001 to Hurricanes Katrina and Rita in 2005.

“Increasing these taxes will increase the costs for U.S. businesses and consumers,” the chairman of Bermuda-based Ariel Insurance Company, Donald Kramer, testified. “Increased taxes will increase prices and reduce the availability of coverage and competition in insurance markets, worsening capacity shortfalls, and escalating insurance prices unnecessarily.”

Business owners in Kentucky and New York in particular, he said, would have to pay more for insurance.