As an ABI report reveals insurers’ mounting discontent with the UK tax regime, we talk to four top managers about the pros and cons of avoiding it by moving away from home
As the recession lingers on, all businesses are looking to save money. While many insurance firms have survived the financial crisis relatively unscathed and the economic outlook shows signs of brightening, there is still huge pressure on balance sheets.
The publication of the ABI report ‘UK competitiveness: the way forward for insurance’ has shown that a fresh storm may be brewing.
It argues that the UK business tax regime is hampering insurers’ international competitiveness and is encouraging companies to redomicile in low tax jurisdictions.
According to an ABI survey, 71% of the industry’s top managers have concerns about the corporation tax regime and see it as uncompetitive. More than half of insurers surveyed anticipated that more companies would move offshore for tax purposes.
The ABI has called for improvements to the regime: exemptions for foreign branches, an end to unwarranted complexity, and initiatives to make personal tax and pension policies more competitive. Failure to take action, it argues, could threaten the UK’s status as one of the world’s largest insurance centres.
We talked to some key industry figures about the benefits, business-wise and personal, of moving to other climes.
Charles Dupplin, chief executive of Hiscox Bermuda
The big move: Hiscox redomiciled from the UK to Bermuda in 2006. The island’s status as an insurance centre has grown rapidly in recent years and is estimated to have a £30bn share in the global capital in reinsurance.
“We were expanding geographically, and with 10 offices in the USA it made sense to manage the company outside London.
“Bermuda was an obvious choice. It represents a very attractive market for reinsurance buyers, is closer than London and has a friendly regulatory and tax environment. Corporate tax on profits here is zero, whereas corporate tax in the UK is 28%. The UK corporate tax system in the last 10 years has become very complicated. If you make taxation as unattractive as the UK has, then inevitably people will start moving their capital around.
“Every year there is a fiddle. You have just got to grips with the change, HMRC has got to grips with it and your own advisers have got to grips with it; then April comes around and, ping, there’s another change. It has driven lots of companies outside of the British market. If you want large amounts of capital from international businesses to come into your country, you have to be competitive.
“It is a pity because there is a marvellous advantage in London. It is international and has masses of people trained in every aspect of financial services. But this advantage is being put at risk. They have really got to simplify and lower the taxes to attract international capital back.
“Here, the regulator – the Bermuda Monetary Association – is superb.They understand the business and they answer your questions. The FSA is more likely to say: “You read the rule book; we are not going to interpret it for you.” Bermuda is very relaxed and a lovely place to live with great weather. But it is not a flashy place.
“In London, you see the financial services gods driving Ferraris and Bentleys. In Bermuda you could easily find them driving around in a battered old mini. We are here for another three years before we return to Britain. But I think we’ll have very mixed feelings about going back.”
Julie Rodilosso, chief executive of Adding 1
The big move: Rodilosso set up the company in Jersey in 2004 as a sub-marketing distribution arm, selling AIG and QBE products to UK brokers.
“People are very comfortable under the regime in Jersey. The maximum personal tax you pay is 20%, compared with 50% in the UK; there is no capital gains tax; and the corporation tax is only 10% compared with nearly 30% at home.
“In the UK, the current tax regime is encouraging people to leave and I think it is a shame. We had a brain drain when tax went up a few years ago. If it goes any higher, I can’t see many entrepreneurs or business centres putting up with it.
“It is difficult to compare Jersey with the UK because it is a small island. I also understand there are a lot more people in the UK and that means more taxes. But it’s got to the stage where taxes are too high. We have got to make business more accessible and easy for businesses and insurance companies.
“London is a very stable, traditional market. It is one of the largest financial centres in the world. That said, the number of entrepreneurs coming into Jersey is increasing. I chose to move here mainly for lifestyle reasons. It is a less stressful place to work.
“It’s a bit like an Enid Blyton novel: you’re on the beach a lot of the time; people tend to cycle to work; there are no motorways and everything is five minutes away.
“It is also a very safe place to bring up children. Mine are grown up but there’s a great education system for those with children. It is a great way to entice people over. Five staff have come with me from the UK and I have another five waiting.
“My staff pay on average 16% personal tax, whereas in the UK they were paying a minimum of 40%.
“I miss the UK and my friends very much. But do I miss the style of living? No. We are only 35 minutes from Gatwick. I come over 60 times a year and that’s enough for me.”
Paul Sykes, managing director, Aon Insurance Managers
The big move: In 2006, Sykes moved from Guernsey to Gibraltar to oversee Aon’s operations in Gibraltar and Malta.
“Gibraltar gained fiscal sovereignty in 2008 and chose to have a corporate tax rate of 10%, which is simple and straightforward for people to understand. Before that there was an exempt tax status that was not consistent with European tax harmonisation.
“I think Gibraltar will become more attractive because of the simple headline corporate tax rate. Anecdotal and empirical evidence shows that companies are not put off Gibraltar. A lot would be paying their home state rate of tax under the controlled foreign companies (CFC) legislation, so this tax rate is immaterial to them. It will be more attractive to companies as an onshore finance centre as opposed to a tax haven. I expect it is going to have a tremendous impact.
“There are companies making public declarations about moving out of the UK, and a number have gone to Ireland or are talking about Gibraltar. We know some have gone to the Netherlands.
“But the UK’s dominance as an insurance centre is built on a lot more than tax. I don’t think its position will be threatened by the tax status of British companies.
“However, I don’t think complexity and uncertainty enables business. Making things transparent and simple is an advantage. I think that is what my clients appreciate. It was a nerve-wracking decision to move from the gilded cage of Guernsey but I couldn’t resist the challenge. There is lots of potential for business here and, with Spain on the doorstep, a ready labour supply. Gibraltar is a cultural melting pot and there is a vibrancy here.
“I am about 10 minutes’ walk from work. We came from Guernsey with a one-year-old child and our twins were born in Gibraltar. Childcare is affordable and plentiful, and it’s generally more child-friendly than the UK – even in terms of the pavements, which are easier for prams. It would have to be a hell of a price to get us back to the UK.”
Patrick Boisvert, chief financial officer of Flagstone Re
The big move: The company redomiciled to Switzerland in 2008 while retaining a platform in its original headquarters, Bermuda. As speculation mounts that the USA will take a harder line on offshore tax havens, it is predicted more reinsurance companies will switch from Bermuda to Switzerland.
“One year after the formation of Flagstone Re, we established a Swiss reinsurance company.
We were structured as a Bermuda reinsurance company and a Swiss reinsurance company, and had capital in two locations, so it was not very efficient.
“We gained a lot by putting everything under one balance sheet in Switzerland. Another benefit was the quality of the Swiss signature. Switzerland has a very good reputation globally, it has a stable political climate and the regulatory regime is probably the best in the world. It has a lot of tax agreements with countries, which are of benefit.
“Switzerland definitely has a more favourable tax regime than the UK. The tax rate is 8%. It is
not a tax-exempt regime like Bermuda, but the rate we are paying is still low and there are benefits that offset it: the various tax treaties and access to business we would not be allowed to from Bermuda.
“If you are a Bermuda company, you will have a 30% withholding tax on any outward reinsurance premium with business from emerging markets such as Brazil or Mexico. This is an incentive not to use internal reinsurers in Bermuda.
“As a Swiss company, we don’t have this withholding package; Brazil is more widely recognised. And under the tax regime, you don’t pay federal excise tax on premium between here and the US. These are significant benefits.
“I haven’t heard that much about redomiciles from the UK to Switzerland, but I’m sure chief financial officers and tax advisers are looking into it.
“It is hard here sometimes, because it is not my home country. I’m French Canadian but spent nine years in Bermuda. It was a family decision to move. Given that our company is based in the French part of Switzerland and we are from a French background, it was a benefit to move here. My children speak English in school and French at home. And when it comes to lifestyle, Switzerland is a fabulous country.” IT