Bermuda's insurance industry is a good source of capital to the US and American legislators would be foolish to cut off that supply by changing the tax rules, according to the Island's top financial regulator Matthew Elderfield.

Mr. Elderfield, CEO of the Bermuda Monetary Authority (BMA), was speaking on a panel at the Bermuda Insurance 2008 conference held at the Fairmont Hamilton Princess hotel yesterday.

Discussing globalisation of regulation, he was joined on the panel by moderator Colm Homan, an insurance partner at PricewaterhouseCoopers Bermuda, Simon Rich, senior vice-president and global controller of XL Capital Ltd., and Rob Jones, managing director of Standard & Poor's.

Mr. Elderfield was addressing a question on the impact of President-elect Barack Obama's threats to "shut down tax havens".

He said on the one hand the legislative programme in the US was going to be expensive, including having to pay for the bailout bill, but on the other there was no need to be pessimistic about the tax demand on jurisdictions.

"I think the question of tax is obviously a hot one and a very topical one," he said.

Despite Obama not making direct reference to Bermuda, the Island was on a list of jurisdictions taken from Internal Revenue Service court filings identified as "probable locations for US tax evasion" under the "Stop Tax Haven Abuse Act" introduced by Obama, Democratic Senator Carl Levin and Republican Sen. Norman Coleman last year.

But Mr. Elderfield pointed out that Obama was only a co-sponsor of the bill and not too much should be read into the threat, but he warned the new government needed to be careful to ensure its capital base.

"I think the core point and one very important argument with the incoming administration is that you do not want to be discouraging capital coming into the US at this financially difficult time," he said.

"Bermuda is a source of capital and the lesson in the past six to eight weeks is that you need to get more capital in the financial system.

"Changing the tax system would be high-risk and imprudent and you do it at your peril."

The session focused on the breadth and practical implications of the latest changes to the global regulatory environment, with Mr. Homan giving an overview of regulation in Bermuda, including the introduction of the BMA's business plan earlier this year.

Mr. Elderfield said there had been a lot of support from the insurance sector for the regulatory change programme and that having a good regulatory framework gave it a competitive advantage.

He said the new Solvency II standards would allow Bermuda companies to operate in other jurisdictions without any added burden, avoid any duplication of regulation and optimise group capital stock.

On top of that, said Mr. Elderfield, the International Monetary Fund had published an assessment of regulation on the Island, which recognised it as being "highly observant" of international standards, with other studies set to be released by the European Union in 2011/12 and the US in the near future.