Insurers Leave Their Island Homes and Head to Ireland

Faith and begorrah! It's not a full-scale migration yet, but it appears as if many insurers are leaving their sunny southern Atlantic and Caribbean island homes and heading for Europe, often '"redomesticating," as the phrase goes, in Ireland.

XL Group CEO Michael McGavick, who turned around the ailing reinsurer, announced in January that he was leaving the Cayman Islands and setting sail for the Emerald Isle. The savvy McGavick didn't say why XL was moving other than to "reduce certain risks that may impact us and offer us the opportunity to reinforce our reputation."

Last September, the world's third largest insurance broker, Willis Group Holdings, announced that it was moving from Bermuda to Ireland. Another smart CEO, this time Joseph Plumeri, didn't give much in the way of a rationale, except to say that Ireland provides a "more stable environment."

Ace Limited, which was the biggest Bermuda-based insurer and reinsurer, jumped ship in 2008 headed for Switzerland. CEO Evan Greenberg was crystal clear about the reason: Switzerland offered more stability and a "network of tax treaties."

Insurer General Re, owned by America's biggest billionaire Warren Buffett, expanded overseas with an asset management arm based in Dublin. And former longtime American International Group CEO Hank Greenberg redomesticated his SICO unit from Panama to the same place.

Since Bermuda and the Caribbean hideaways have always been considered tax havens, U.S.-based insurers often complain about the advantages of their island counterparts. For their part, the Bermuda insurers simply smile and produce record profits. The U.S. was content to let this continue because the Bermuda reinsurers provided huge pools of liquid capital that backed up the domestic property insurers when a disaster like 2005's Hurricane Katrina hit. And when Bermuda insurers did have to pay off, U.S. hedge funds, private equity and wealthy individuals were always ready to re-bankroll the Bermuda insurers because it was virtually untaxed money.

But President Obama's populist rhetoric, and public anger at huge executive bonuses, may make the tiny islands of Bermuda a big target. BusinessWeek warns that, "Anti-tax legislation in Washington could limit the ability of U.S. companies located in Bermuda to shelter overseas profits."

A warning knell: the White House budget proposal released on Jan. 31 that would deny U.S.-based insurance companies a deduction for certain premiums ceded to their offshore parents.

Why the move to Ireland? Morningstar analyst Bill Bergman says that there's good golf. But he warns that Ireland, too, may soon find itself on Obama's hit list.