BERMUDA’S reputation as the premier offshore destination for international business is under threat — from landlocked Vermont.According to a report in yesterday’s New York Times, the northern US state is luring companies to the region with lucrative tax breaks through unusual insurance arrangements.

The newspaper claims that more than 560 US companies — including Wal-Mart and Starbucks — have now set up Vermont-based captives to insure their biggest risks and liabilities, giving them a tax benefit in the process.

The state has had laws allowing insurance captives since the 1980s, but only began promoting itself as an alternative to traditional offshore insurance destinations like Bermuda a decade ago.

In 2001, then-Governor Howard Dean said the state would eventually “overtake Bermuda” as the place with the most insurance captives.

The article added: “It probably also helps that Vermont, known for its dairy farms and covered bridges, has a squeaky-clean image compared with Caribbean havens that have been in the news because of money laundering and other shady dealings.”