More US Insurers Flock To Bermuda

by Mike Godfrey, Tax-News.com, Washington

16 October 2001

As more insurers and reinsurance specialists flock to take advantage of Bermuda's tax and regulatory systems, it seems that it is only a matter of time before the dispute between insurance companies anchored in the US and their offshore counterparts begins again in earnest.

As demand for insurance soars in the wake of the September 11th terrorist attacks, new companies such as Axis (formed by the private equity subsidiary of Marsh & McLennan) are springing up across Bermuda, and other companies look set to follow suit, either expanding existing operations, or establishing new parent companies in the jurisdiction in order to increase cost effectiveness.

In an interview last month with the Financial Times, insurance stock analyst Vincent J. Dowling explained the attraction: 'A Bermuda based reinsurer avoids taxes on a significant percentage of its earnings, resulting in a higher after tax return to shareholders, and enjoys a regulatory environment which provides more privacy and flexibility. It's simple: Bermuda is a better mousetrap.'

However, before the attacks, insurance companies such as Chubb, Hartford, Liberty Mutual and Kempler, all anchored to the US by their tax circumstances, had been lobbying government to close what they called the 'Bermuda loophole', and although industry groups have said that the Bermuda issue is not a priority at the moment, the flood of offshore relocations and startups mean that a resurgence of the debate is not far off.

Keith Buckley, an analyst with the ratings company Fitch confirmed this in the FT: 'The more business that's flowing through Bermuda, the more likely it becomes that US companies will raise objections over the tax advantage,' he explained.

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