Vexed Bermoothes

It’s the Bermuda tradition that each wave of new insurance startups – corresponding to major catastrophes such as the World Trade Centre attack and Hurricane Katrina – are called “the class of” whatever year. Bermuda may have it’s first class graduate as ACE announced [PDF] today that it will move its incorporation from the Cayman Islands to Switzerland saying, among other things, the move “will provide an improved corporate structure and an excellent location for further growth and expansion of our Company.”

It’s a serious blow for Cayman’s insurance aspirations (although ACE never had meaningful operations there). It is unclear whether Bermuda will remain the HQ, as ACE merely describes it as an “executive office” and says that operations on the island will continue.

ACE and XL’s Cayman incorporations were always seen as a hedge against instability in Bermuda. But what has happened is that most of Bermuda’ s insurance heavyweights have bought “onshore” operations and need to have an HQ in very well-regulated countries, with proper tax treaties, and where they can hire the staff they need. One must ask “if they don’t need the hedge against Bermuda, do they still value Bermuda?”

You may recall a little contretemps last year between the Minister of Finance (who *ahem* also works at ACE) with her boss ACE’s CEO over the quality of Bermuda’s regulatory efforts. He said inadequate. She said balderdash, we’re The Gold Standard™. He disagreed but realised that most of the world’s gold trades in Zurich, which is also host to a growing number of Bermuda insurers. Grüezi!

This change is inevitable – given the prestige held by ACE and the insurers’ herd mentality, I am sure others will soon follow. It is not necessarily a gloomy deal for Bermuda. But it means that Bermuda better act intelligently with our international taxpayers and employers, because their options get wider every day. And somehow we have to pay for our Government that spends money like a drunk hooker.