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Reinsurer domicile moves won"t affect global market: Experts

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COLORADO SPRINGS, Colo.—The recent move by several reinsurers to redomicile from Bermuda to Switzerland will not significantly affect the Bermuda market or the overall market in the near term, reinsurance officials say.

Companies that recently moved their domicile from Bermuda include Allied World Assurance Co. Holdings Ltd., Amlin P.L.C., Flagstone Holdings Ltd. and ACE Ltd. (BI, Oct. 11).

“It doesn't matter” where a company is domiciled, said William H. Eyre Jr., Philadelphia-based managing director of Towers Watson & Co.'s reinsurance brokerage business, who discussed the issue at the Property Casualty Insurers Assn. of America's annual meeting. “Our clients are concerned about the financial status of a reinsurer and the underwriting talent and the underwriting philosophy of that company,” he said. “It doesn't matter if a reinsurer is in Dublin or in Zurich or Bermuda or New York.”

Joseph M. Fedor, executive vp and director of Pearl River, N.Y.-based U.S. Re Corp., said, “I don't think it is going to have much of an impact on the market. This is really a corporate decision whether to assist in the diversification process or, alternatively, to shelter the company from U.S. taxation.”

“All these companies are keeping their Bermuda underwriting expertise available” and are not pulling it off the island, said John Andre, group vp of global reinsurance and alternative markets for Oldwick, N.J.-based A.M. Best Co. Inc.

In the near term, the moves will not have much impact, said Kelly R. Superczynski, senior managing director at Aon Benfield Analytics' rating agency advisory unit in Chicago. “Obviously, companies are planning for potential changes in the tax relationship between the U.S. and Bermuda and being proactive in terms of redomesticating.”

At least operationally, there has not been much change “because they're keeping a lot of their operations in Bermuda,” said Ms. Superczynski.

The trend, though, toward redomesticating in Switzerland, Dublin and Luxembourg is expected to increase in coming years “until there's a decision one way or another on the Neal bill,” she said.

H.R. 3424, which was introduced by Rep. Richard E. Neal, D-Mass., seeks to limit tax deductions for reinsurers that cede large portions of their U.S. premiums to offshore affiliates.

Damien Magarelli, director at rating agency Standard & Poor's Corp. in New York, said, “We don't believe that the move to Switzerland has an impact on our ratings” because “most companies are already global companies.”

However, he added, “there are questions” around Bermuda and Solvency II and whether the island's “place in the market will be sustainable or not.” It will be sustainable as long as it exists as a center of excellence and as a distribution center and market where business is transacted, he said.

“For lines of business like excess casualty coverages, property cat and for other short-tail lines of business, Bermuda still has a very strong place in the market and it will be sustainable,” he said. However, questions regarding its tax advantages would be “one of the reasons that companies are considering moving their holding companies to different locations.”

Meanwhile, the European Commission has named Bermuda, Switzerland and Japan as the first non-European Union countries to undergo equivalency reviews prior to the proposed implementation of Solvency II.