Are the Bermuda and London reinsurance markets friends or foes? The announcement that the long-established London insurer Hiscox is to relocate its headquarters to Bermuda has thrust the London-Bermuda relationship onto the front pages, with a great deal of newsprint suddenly expended on discussing the relationship between the two international insurance centres.

Ratings Agency Standard & Poor?s (S&P) has commented that it believes Hiscox ?will by no means be the last traditional London-based organisation to consider such changes.? The subject has been the main topic of conversation at this year?s 50th Monte Carlo Rendez-vous, the annual reinsurance industry get-together.

Now, in a report entitled ?The Rise Of The Global (Re)Insurance Nomad?, S&P has concluded that although ?the picture typically painted is one of cut-throat competition ? what is often overlooked ? is the centres? close symbiotic, or mutually beneficial, relationship.?

S&P authors Marcus Rivaldi and Laline Carvalho point out, in what could be interpreted as a warning to Bermuda, ?that there are potentially material gains to be made from managing businesses with a global rather than a local market mindset. Many business lines, particularly those of a specialty nature, can increasingly be described as ?footloose?: they can be underwritten anywhere, and there are a growing number of international insurance centres keen to offer them, and the organisations following them, a home.?

S&P believes ?the corporate structures of the future will have a significant impact on whether competitive positions thrive or fail. Success will come to businesses designed to have the nimbleness imaginative executive teams require as they seek to manage their way through underwriting cycles and the international movement of business, and appeal to increasingly demanding and transient capital providers. These groups, the ?global nomads?,? S&P says, ?will have electronic trading capability, flexible and reversible physical infrastructure, senior management teams willing to travel and relocate, and will use well-controlled outsourcing arrangements.?

On the subject of competition between Bermuda and London, S&P lists the perceived advantages of both and comes down on Bermuda?s side in certain areas (see table). ?At first glance, the arguments for Bermuda appear more convincing,? S&P says. ?The island is undoubtedly the present preferred domicile for reinsurance start-ups and new formations. The 2005 hurricane season, for example, sparked the creation of about 12 new reinsurance companies in Bermuda, backed by more than $10 billion in capital. These included offshoots of a number of well-known London organisations.?

However, the report goes on to say: ?A focus on these facts overstates Bermuda?s competitive position and understates that of other markets, including London. But if this is the case, why does the International Underwriting Association of London, the world?s largest representative organisation for international and wholesale insurance and reinsurance companies, include many prominent Bermudian groups? And why is it that the Bermudian insurance industry continues to be a material provider of Lloyd?s capacity??

The answer to both questions, S&P says, is that, in order to put capital raised effectively to work, it is necessary to substantially deploy it outside Bermuda, usually onshore in the US and/or in the London market, both of which offer access to attractive, diverse, and typically more labour-intensive business unavailable or unserviceable in Bermuda.

?Therefore,? S&P says, ?although many start-ups have begun life in Bermuda and their ultimate holding companies remain there, very few write business exclusively from the island. Bermuda on its own rarely offers the level of diversification businesses crave.?

S&P continues: ?Executives recognise that their organisations are best served if they can benefit from all the advantages common to London and Bermuda combined, rather than just those in one of the two centres. It is easier for companies to reap all these benefits if they are effectively starting with a clean sheet, as new businesses do.?

The rating agency says that ?the most common steps taken to benefit from the favourable tax environment and Bermuda?s increasing dominance within the property catastrophe market include: the redomiciling of holding companies to Bermuda; the establishment of Bermudian operating entities, accompanied by the transfer from existing onshore activities of lines of business best suited to an offshore environment, such as property catastrophe reinsurance; and the provision from Bermuda of loans and quota shares to further optimise returns.?

Finally, S&P points out that Ireland?s ?rapid implementation of the EU Reinsurance Directive (makes) Dublin ? a credible European alternative to London for certain specialised insurance and reinsurance lines - for example, finite and life business. As a result, the potential exists for businesses to redomicile in Ireland, operate in London via a representative office or branch, and benefit from a lower tax rate and a lighter regulatory touch? than that in Britain.