With U.S. tax and regulatory legislation up in the air forinsurers and reinsurers, even if offshore moves adversely affectBermuda's longtime insurance supremacy, don't expect carriers toabandon the island in droves anytime soon, analysts suggest.

Laline Carvalho, director of financial services ratings forNorth American insurance with Standard & Poor's, authored apaper in early September looking at re-domestication trends awayfrom Bermuda, titled: “Reinsurer Domicile Of Choice: Where Is ItNow?”

“The question now, in Standard& Poor's Ratings Services' view, is whether Bermuda canmaintain its status as a key domicile of choice for globalreinsurance companies (and particularly for new company formations)now that other countries, such as Ireland and Switzerland, havethrown their hats in the ring,” she said in her paper.

More recently, however, she has taken a wait-and-seeapproach.

“I think it's too early to make a call,” she said. “When we werein Monte Carlo [for September's annual Reinsurance Rendez-Vousconference], we talked to market participants from Bermuda, and itseemed that the overall levels of concern had declined.”

In her report, she noted that one of the biggest reasons forleaving Bermuda “may be the possibility that the U.S. (and possiblyother countries) could change its tax treatment of U.S.-sourcedbusiness going to Bermuda and other low-tax domiciles.”

She warned that “this could mean that (re)insurers based inthese low-tax jurisdictions may be required to pay higher taxesrelated to business originated in the U.S. or other higher-taxjurisdictions.”

She speculated, however, that while it's possible a looming taxchange could strip away some advantages of domiciling in Bermuda,“it is not as imminent as thought a few months ago. There have beendelays in discussions about this in Congress. So I would say it's alittle soon [to worry].”

She added that the scope of the proposals by the Obamaadministration has changed, and that there now are severaldifferent proposals on the table.

“The scope is different depending on which proposal you'relooking at, so it makes it difficult to determine what impact theremight be on companies,” according to Ms. Carvalho. “We continue toexpect that this will not be a ratings driver.”

The impact may be negligible inany case, however, because large global reinsurers have set upsubsidiaries in many parts of the world.

“They write global business–they could change domiciles ifnecessary for whatever reason,” she explained. “They could changedomiciles without a major impact to their operations, or no impactat all.”

If there are tax changes made by the United States, she saidit's possible that a number of Bermuda companies will thinkseriously about re-domestication, “but whether they will decide tomove is another question. There's a possibility they may find thechanges are not meaningful,” she noted.

Companies in Bermuda have made their voices heard in Washingtonwith regards to the taxation issue, according to Ms. Carvalho.

“Bermuda has been very active on the regulatory side,” she said.“Looking at Solvency II coming in Europe, for example, Bermuda hasmade efforts to beef up their staff,” as well as improve andenhance regulatory oversight, she noted–referring to the updatedset of regulatory requirements for carriers doing business in theEuropean Union, due to be implemented in 2012.

“I would say they are not being left behind–they are stayingahead of the curve, in fact,” she said. “And it's still an islandthat is one of the main centers of reinsurance business in theworld…There are reasons to stay.”

Bermuda has been active in responding to foreign concerns onmultiple fronts, meeting with U.S. officials and tighteningregulations overseeing money laundering as well as financialservices. Indeed, on Oct. 1, Bermuda announced publication of threenew papers:

o “The Consultation Paper on Eligible Capital,” outlining theBermuda Monetary Authority's planned approach to determiningcapital resources eligible to meet regulatory capital requirementlevels.

o “The Discussion Paper on Own Risk and Solvency Assessment,” orORSA, a process that involves requiring firms to demonstrate thelink between their capital model, risk governance and strategicdecision-making. The process helps regulators better understand therisk-profile of companies.

o “The Consultation Paper on the Insurance Code of Conduct,”which builds upon and codifies the governance standards alreadyestablished within the jurisdiction of Bermuda.

(The three documents are available at www.bma.bm.)

Duncan Aitken, a director with BMS in London, said that with thetax situation in general, and legislation up in the air, “itremains to be seen whether a trend to re-domicile to places likeIreland and Switzerland will take hold.”

He agreed that large reinsurers are nimble and prepared to pivotin whatever direction is needed without adversely affecting theirorganization.

“I think it will be interesting to see what happensjurisdictionally,” he said. “As you know, there are discussions invarious parts of the world about what might happen in offshoreareas about taxation.”

In London, for example, he said the markets are keeping an eyeon taxation in the United Kingdom. In fact, he noted, one or twoLloyd's syndicates decided to re-domicile in 2008 to Holland, andsome Bermuda reinsurers have re-domiciled to Switzerland.

“So I think that might be an interesting development to watch,”he said. “And we know it is coming; it's just a matter of what formit comes in.”

He said that most insurers and reinsurers utilize enterpriserisk management practices and “have some form of exit strategy fromthe current jurisdiction they operate in.”

Ms. Carvalho said in her report that ongoing issues in Bermudainclude its limited resources, and the increasing difficulty ofobtaining work visas, finding permanent offices and living spaces,as well as schooling for foreign workers' children.

“Currently, many employees from the Class of 2005 companies(Bermuda start-ups that were formed to take advantage of favorablemarket conditions following Hurricanes Katrina, Rita and Wilma inthe U.S.) commute to the island during the week and return to theirhomes in the U.S. over the weekend,” she noted, adding thatcompanies have compensated by having fewer employees on the islandand more working from other locations.