BERMUDA's international business community has reacted to this week's news that XL may seek a buyer, voicing fear that this "financial and reputational disaster" could have a catastrophic effect on the local economy.

Their concerns have been compounded by reports that three large corporations are relocating from Bermuda to Switzerland, striking a further blow to the island's financial sector.

XL was the subject of countless headlines worldwide this week after financial newswire Bloomberg News broke news of the company's search for a buyer.

Bloomberg learned that XL had retained the services of investment bank Goldman Sachs to explore its options, which include sale. XL's stock initially spiked following the report, but quickly headed south. Yesterday morning, business wire Thomson Financial reported the stock's slide, and quoted industry sources as saying the number of potential buyers for XL has "shrunk considerably".

A Bermuda-based reinsurance CEO agreed, telling the Mid-Ocean News yesterday that XL's chances of finding a buyer are slim in today's disastrous economy. He added that the company could be left with little choice but to lay off a number of high-ranking executives. XL CEO Michael McGavick already announced a cull of 47 jobs, or 15 per cent of its Bermuda workforce, back in August.

"XL has been a sizeable employer in the international sector and the loss of so many executive positions may have a noticeable effect on Bermuda's economy," said the CEO of an international company, who declined to be named. "Given the general debacle in the global financial markets, the chance of Goldman finding a buyer must be fairly remote."

He added that this latest news is just the culmination of a decade worth of mistakes for XL, which, as one of only two real 'flagship' companies in Bermuda, is garnering harmful international media attention for the island.

"XL has been guilty of a series of poor decisions since at least the purchase of NAC Re in 1999," he said.

"XL was Bermuda's first large publicly-traded insurer, and it and ACE have been, in some ways, the public face of Bermuda in the global markets. It is not as if it's alone in facing a sea of troubles – AIG's downfall has been much more public and catastrophic.

"But it's not a good time for Bermuda to be getting international coverage for the wrong reasons. This is something of a financial and reputational disaster for Bermuda."

Another top insurance executive who has dealt with XL told the Mid-Ocean News that the sale of the company would represent "a large loss for the island".

However, he added that the company is "not going out of business yet", remaining hopeful for the recovery of Bermuda's (re)insurance sector.

"XL is a large global company that insures many different lines of coverage and is also a player in the reinsurance market," he explained.

"The loss of XL would accelerate the hardening of the insurance and reinsurance market as capacity would decrease; it is simply a factor of supply and demand. That being said, they are not going out of business yet, and their ratings have not been changed."

He also wished to remind the Bermuda public that XL is not alone in its predicament given the state of the global economy and its ramifications in the (re)insurance sector.

"Many insurance stocks are down, and being a public company they need to look at all options, including a sale," he explained.

He added that, should Goldman Sachs find a buyer for XL outside of Bermuda, the island would feel the consequences.

"The sale of XL to a non Bermudian-based company would be a large loss to the island," he said.

In a statement released on Wednesday, XL downplayed reports of an imminent sale, saying it is "continuing to explore value-enhancing opportunities available to it and is being assisted in that effort by one of its long-standing financial advisors, Goldman, Sachs & Co."

"The company remains focused on operating its business and meeting the needs of its customers and is committed to taking actions as necessary to maximise value for its shareholders," the statement went on.

The release included XL's prediction of an estimated decline on its investment portfolio and an affiliated fourth quarter loss.

News of XL's possible sale came on the heels of reports that three international companies headquartered in Bermuda are pulling out, intending to move their headquarters to Switzerland. Bloomberg News reported this week that Tyco International, Foster Wheeler and Weatherford International are considering relocating for the favourable tax environment in Switzerland.

A spokesman for Tyco International, the world's largest security system manufacturer, told Bloomberg News that the decision to leave Bermuda boils down to stability.

"The tax treaty between the US and Switzerland has been in place for more than 50 years and it provides a predictable and stable mechanism for determining what taxes are due in each country," Paul Fitzhenry said.

Bloomberg News also quoted an analyst from New York bank Macquarie Capital, Sameer Rathod, explaining why Bermuda may lose out to Switzerland as the preferred jurisdiction for incorporation.

"The tax world there is more established compared with Bermuda", he said of Switzerland.

"The laws and regulations are much more developed."