Caroline Muspratt says the threat of Bermuda is just a question of presentation
If you were starting a new insurance company today, you wouldn't base it in London. That's the view of Hiscox chairman Robert Hiscox, who said on 11September he was moving the company's domicile to Bermuda.
There are significant tax advantages in Bermuda which make registering a company there attractive. Hiscox said that Catlin, a direct competitor that is already based in Bermuda, pays a tax rate of 11% compared to Hiscox's current 30%.
He also cited the better regulatory environment in Bermuda as a reason for the change of domicile.
Aim-listed Omega Underwriting also said this week that it would set up a Bermuda holding company. Chief executive Richard Tolliday explained the reason for the move as because that's where the majority of the group's business comes from and where the majority of the capital will be.
But surely it can't be as simple as that, or every insurer would be hot-footing it across to the island?
Home of the world's biggest offshore insurance industry, Bermuda offers superb access to the US commercial property market. The Bermuda Insurance Organisation also cites on its website the minimal red tape, political and economic stability and sophisticated infrastructure as reasons companies are attracted to the location.
Many global insurers such as AIG and Swiss Re have subsidiaries there, but to base a company in Bermuda is another thing entirely.
Amlin, the Lloyd's insurer which has a growing Bermuda operation, is happy to remain based in London.
A spokesman for the company confirmed to me that they have no intention of moving its domicile to Bermuda. But this was qualified with "at the moment".
He said the company, headed by Charles Phillips, does benefit by paying Bermuda tax rates on profits earned from its operations there, but added: "London is its home."
Lloyd's chairman Lord Levene has called several times for a more favourable tax regime in London, saying it will help the market compete with Bermuda and remain the location of choice for insurance business.
Aside from the logistical problems - if you can call the odd trip to Bermuda for a board meeting and a round of golf a problem - there are certainly benefits to moving to Bermuda. Hiscox will presumably pay tax on its investment income at Bermuda rates, while the likes of Amlin will still pay tax on that income in the UK.
However, Bermuda is a small place and it can be difficult to attract enough staff, and while it is an important market, it has nothing on Lloyd's 318-year history.
Even Hiscox agrees that "the London market is still the principal centre for internationally traded risks".
A report from Standard & Poor's says the mutually beneficial relationship between London and Bermuda is often overlooked. So insurers don't need to up sticks and move their domicile to be able to take advantage of the opportunities that Bermuda offers.
S&P says Bermuda is currently the preferred domicile for reinsurance start-ups, but that for capital to work, it needs to be deployed outside of Bermuda, either in the US or London.
Omega's Tolliday also points out that the usual takeover code does not apply to a company based in Bermuda, so a shareholder can build up a stake of more than 30% without being forced to make a bid for the group.
Omega says it is changing its by-laws to require certain levels of share ownership disclosure, but nonetheless it will be interesting to see whether this encourages people to build larger stakes.
At the end of the day, it is an issue of perception. A Bermuda-based insurer can present itself in a different way to a Lloyd's insurer - even when it has operations in both locations.
Hiscox says he is fed up of hearing the company referred to as a Lloyd's vehicle, preferring to call it an international business. Moving the domicile out of London does not cut any ties with the Lloyd's market, but does remind investors of the company's global reach.
So while there are obvious tax benefits to relocating to Bermuda, it is unlikely we will see a flood of insurers changing their domicile - unless a company feels it is time for a change of image. IT
