Following the large financial losses incurred by the insurers as a result of the September 11 attacks, Congress is considering legislation that would offer tax relief for the insurance industry.

For example, the bill would remove barriers to mergers and give some insurers a tax break by allowing them to use their losses in one subsidiary — such as property-casualty — to offset gains in another. Since companies pay taxes on their gains, the shift could result in huge tax savings.

This is critical. After all, published reports have estimated the potential losses by property-casualty insurers to exceed $30 billion, which would make it the largest payout ever for the industry.

Standard & Poor’s on Thursday said insurers and reinsurers have a total of $17.5 billion of insured losses from the destruction of the World Trade Center buildings, but noted that no leading insurer or reinsurer faces insolvency…yet.

Allianz, Germany’s largest insurance company, on Friday cut its full- year earnings forecast by 15 percent, warning that claims related to the terrorist attacks will likely be higher than initially expected.

Little surprise: S&P downgraded two of the world’s biggest insurers — Lloyd’s and Zurich Insurance Co. It also warned it may again downgrade them and 15 other insurance groups because of the “catastrophic losses” from last week’s terrorist attacks.

S&P cut Lloyd’s financial strength rating to A, its sixth-highest grade, from A-plus, and cut Zurich Insurance’s counterparty credit and financial strength ratings to AA, its third-highest grade, from AA-plus.

Some sort of bailout would be good news for all companies, since it would reduce the potential premium hikes insurers are sure to impose. “We are well capitalized and financially sound,” a spokeswoman for the American Insurance Association told Reuters.