No Tax Impact Seen Yet, Bermuda Execs Say

Two Bermuda executives said yesterday their companies wouldn't be greatly impacted by a change in U.S. tax laws that Chubb insurance said it will fight for to eliminate an advantage held by Bermuda competitors.

But over the long term, one conceded the possibility that Bermuda advantages generally would begin to erode.

On Monday, during an earnings conference call, Chubb Vice Chair John Degnan said the Warren, N.J-based company was working with a coalition of U.S.-domiciled property-casualty companies to urge Congress to amend the U.S. tax code to eliminate situations where primary companies transact business on shore, then cede most of the premiums to affiliates in tax havens.

Executives of Everest Re and PartnerRe were asked to respond to Chubb's revelation during earnings conference calls with investors yesterday.

At Everest Re, CEO Joseph Taranto said that in spite of the current efforts of U.S. primary companies who have privately met with federal lawmakers, he didn't expect the Bermuda tax situation to change. He based his prediction on the outcome of the last public battle.

"There clearly was a big push to make changes...years ago, and that gained some momentum. But ultimately that was not seen as the right way to go by the Treasury or in Congress," he said, suggesting that more study was put into the issue back then than seems to be the case today.

Executives, including Mr. Degnan, generally seemed to agree that companies that only transact reinsurance business, like PartnerRe, are not the main target of the battle that's building.

"But we may well get caught up in the solution to this problem" anyway, said PartnerRe CEO Patrick Thiele, predicting, however, that damage caused by any taxation change to a company writing reinsurance business would be less.

"Over a long period of time, it is clear that either through regulation or legislative fiat, there will be a gradual slow reduction in the Bermuda advantage," Mr. Thiele added.

Albert Benchimol, PartnerRe's chief financial officer, responding to a direct question about the predicted near-term change in the reinsurer's average tax rate should the Chubb coalition be successful, noted the worldwide nature of his company's book of business.

Any tax change "needs to attach only to U.S. business," Mr. Benchimol said. "The United States can't tax business we write in Bermuda that comes out of Japan" or other countries, he said.

As for PartnerRe business sourced from the United States, Mr. Benchimol said that U.S. business other than catastrophe reinsurance is kept in the United States. "I don't think there are any real pressures to tax catastrophe reinsurance," he continued--"not at a time when people are complaining that catastrophe reinsurance has limited capacity."

At Everest Re, Mr. Taranto noted that his company was not born in Bermuda, but in the United States. With extensive U.S. operations, the company still pays a lot of taxes and has a 15 percent tax rate that is a lot higher than other companies that started out in Bermuda.

Pushed by an analyst to speculate on whether the 15 percent would increase to something like 20 percent or double should Bermuda tax advantages be erased, Mr. Taranto said another 5 percent might be a possible but crude estimate.

"I don't even know exactly what they're trying to do," he noted, referring to the coalition of U.S. primary insurers. "What they're trying to do is eliminate Bermuda altogether."

The Bermuda executives' comments came as they reported first-quarter financial income--Everest Re, a 77 percent jump in first-quarter income attributed largely to the absence of catastrophes, and Partner Re, a 12 percent decline, owing in part to $44 million in losses related to Winter Storm Kyrill.