Captive legislation in Bermuda makes it cheaper to do business on the Island than its two main rivals in Cayman and Guernsey, according to the latest edition of Captive Insurance Company Reports.

The December edition of the leading US industry publication from analysts Tillinghast -Towers Perrin states that legislation introduced in all three jurisdictions will lead to higher costs in the other two off-shore centres, but not Bermuda.

In an article titled "Good Reading: Cell Legislation Compared", Nick Leighton, assistant director of Insurance Services at Caledonian Bank and Trust Ltd. in the Cayman Islands said that differences in cell company legislation may end up costing managers and customers more. It concentrates on Bermuda, Cayman and Guernsey, the three largest domiciles for cell companies.

He said that the main difference is in the treatment of core company assets, adding that in Bermuda "there is no risk to the core capital at all" with the new legislation.

In Cayman, they are "at risk in their entirety from an uncovered deficit in an individual cell following its liquidation." And in Guernsey, the publication said that core capital is at risk, but "only to the extent that `surplus assets' exist in the core capital as defined by solvency ratios."

As a consequence, Mr. Leighton said this difference would cause managers from the Caymans, regulators and customers to require audits of each cell "although they don't at the time of writing".

The article states: "Auditing costs add to the cost of doing business, he points out. Bermuda doesn't require special audits for this issue, so the costs should be the lowest, according to Mr. Leighton. Guernsey's costs should lie between the two other domiciles."

Mr. Leighton also points out other consequences of the legislation to owners and auditors, who may be concerned about the other cells' business and the potential of being responsible for another cell's financial woes.

The article said that these could lead to "unexpected management wrinkles" for those participating in a cell structure.

The article states: "Mr. Leighton also thinks that Bermuda legislation would allow sponsors (promoters) to possibly be more relaxed about the business and capital situation of individual cells, resulting in lower costs of protection and management."

The magazine also took the liberty on commenting on Mr. Leighton's remarks stating that it depended on what was meant by cost, adding that if it was an annual audit cost then "in our opinion, that's a necessary cost of doing business. If it's a risk cost due to higher or lower capital requirements, that is a judgement call by each individual customer."

It went on to say that cell company structures include additional risks not present in other structures and once these risks have been understood and managed, the cost differences mentioned by Mr. Leighton "should not unduly influence customers to select one or the other of these domiciles."