Insurance Boss Fears Offshore Exodus From London Market Unless Tax Is Cut

by Amanda Banks, Tax-News.com, London

05 April 2006

The head of a major British insurance company has warned the UK government that the tax burden on Lloyd's of London reinsurers must be cut in order to keep pace with competition from offshore insurance centres such as Bermuda.

Dane Douetil, the Chief Executive of Brit Insurance was quoted by the Financial Times as suggesting that tax on London reinsurers must be cut to 10% from the current level of 30% to ensure that London remains internationally competitive.

"If the government does not take action now, the London insurance market will go the same way as our manufacturing tradition - offshore," Mr Douetil told the FT.

Without such a tax cut, Mr. Douetil warned that London market insurers and reinsurers would find it impossible to compete with Bermuda, where there is no income or corporation tax, no capital gains tax, no VAT or sales tax, and no withholding tax.

Bermuda is the world's third largest insurance centre after London and New York, and the sector has continued to flourish despite 9/11 and two very active hurricane seasons in 2004 and 2005.

At the end of 2003, aggregate total assets were $235.9 billion compared to a figure of $204 billion at the end of the previous year, an increase of almost 16%. The predominant portion of premium writings is through Bermuda’s commercial reinsurance market, which also writes some direct business on behalf of large U.S. corporations.

It has been reported that Lloyds of London is planning a major overhaul of the market structure in order to make it more competitive.

However, the Lloyd's committee has denied that it has come up with a radical plan to transform the way in which market underwriters raise capital, known as the 'annual venture'.

According to a research paper by investment bank Keefe, Bruyette and Woods, the committee has been discussing plans to transform the world's oldest insurance market into an exchange where financing would be backed predominantly by corporate investors rather than by individual investors, traditionally known as 'Names.'

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