Vexed Bermoothes

Bermuda-based XL Capital today announced that it is moving its incorporation from the Cayman Islands to Ireland to “reduce certain risks that may impact us” and to “reinforce our reputation, which is one of our key assets.”

XL has operated in Ireland for most of its corporate history and is very familiar with its regulatory and legal environment. Ireland has strong international relationships as a member of the Organisation for Economic Co-Operation and Development (OECD) and the European Union, a long history of international investment, and long-established commercial relationships, trade agreements and tax treaties with the other European Union member states, the United States and other countries around the world. As a result, XL believes Ireland offers a stable long-term legal and regulatory environment with the financial sophistication to meet the needs of XL’s global business.

Here’s the AP’s take on XL’s move onshore:

Many companies have been incorporated in Caribbean islands for some time due to the tax benefits that they can provide. The islands have traditionally used their low tax rates to lure multinational corporations and hedge funds. But the recession has hurt revenue for many islands in the British Caribbean, which could lead to higher taxes for companies based there.

A few take aways from this:

1. Reputation matters.  Small island craziness and Fortune 500 governance standards do not mix well.  Bermuda must clean up its act on the streets, in Government, and in Parliament.
2. Size matters.  Small islands don’t carry much weight in international regulatory circles.  Independence makes that isolation even worse.
3. 2016 is coming.  Bermuda must move to clarify the status of our tax exemption on corporate earnings.  The business sector sees the exploding Bermuda Government deficit and worries that a shakedown is coming.  The international companies will move to protect themselves, particularly as the local community seems unwilling to demand that the Government live within its (our!) means.

XL’s already reduced operational headquarters will remain in Bermuda, but going forward more than half the board meetings will be in Ireland.  A few fewer “tourists”.  Hey, if Doc keeps up his track record, pretty soon there’ll be so few that he can personally greet em.