Bermuda's status as the leading reinsurance domicile is facing a "credible threat" from the likes of Dublin and Zurich, as regulatory changes and potential tax legislation encourage companies to consider other bases.

That is the view of global reinsurance broker Guy Carpenter, whose report on the industry also states that rival jurisdictions have "taken note of Bermuda's success and implemented their own business-friendly policies in an attempt to attract operations away from the Island".

However Guy Carpenter added that one of the perceived threats to the Island - tax changes similar to the Neal bill proposed by the Obama administration - could end up driving more business to the Island.

The broker noted Bermuda still offered one of the most competitive tax systems in the world, with no levy on profits, income, dividends or capital gains. But major world powers were now seeking to crack down on "on territories carrying the 'tax haven' stigma", the report added, leading to proposals like the Neal bill.

"The uncertain regulatory environment, combined with the increasing difficulty of obtaining work visas in Bermuda and the shortage of accommodation, offices and schooling on the Island, has prompted some re/insurers to move," Guy Carpenter said.

Both Ireland and Switzerland were proving attractive to reinsurers, since they offer relatively stable tax systems and their corporate tax rates are below the European average. Ireland's tax rate on corporate profits is 12.5 percent.

"In uncertain times, larger countries can offer more security and capital-raising potential than smaller offshore territories and both Ireland and Switzerland have tax treaties with other major markets, including the United States," the report said.

"Their location is also crucial as it allows companies to move closer to their clients. In addition, Ireland's EU membership and stable regulatory environment makes it a very attractive destination."

While the Neal bill, which would increase taxation on premiums ceded from US subsidiaries to their non-US parents, is cited as a great source of uncertainty for Bermudian reinsurers, Guy Carpenter said President Obama's watered-down alternative could even prove to be beneficial to the Island.

"The Obama administration has proposed to use a 50 percent threshold while the Neal Bill would use an industry average," the report said. "Paradoxically, if the Obama administration's proposal were to become law, US-based re/insurerscould be encouraged to open operations in Bermuda as it could significantly cut their tax burden."

For all the efforts of rival jurisdictions to gain ground on Bermuda, Guy Carpenter believes the Island will not be swept aside easily.

"Bermuda continues to be a well regulated re/insurance domicile and, regardless of any tax changes, it has proved its worth to the industry and is, therefore, likely to remain one of the preeminent centres of insurance business in the world, especially for property catastrophe reinsurance," the report stated.

"Indeed, Bermuda is itself looking to compete with other territories, the Cayman Islands particularly, by targeting opportunities in the insurance-linked securities market. Moreover, Bermuda has taken the lead in addressing some of the external concerns, meeting with US officials and tightening money laundering regulations.

"Yet despite this, the financial crisis and the subsequent governmental push to close the tax gap have hit Bermuda's dominance in attracting reinsurance business. The rise of alternative domiciles such as Dublin and Zurich pose a credible threat in becoming the destination of choice for re/insurers.

"Although their rise is unlikely to herald the demise of offshore territories, Ireland and Switzerland will undoubtedly look to consolidate their recent success and challenge Bermuda's established re/insurance supremacy over the next decade."