One of Bermuda's leading insurance bosses yesterday issued a stark warning about multiple threats to the Island's future as an international business jurisdiction amid the ongoing global financial crisis.

XL Capital chief executive officer Michael McGavick told an audience at the annual general meeting of the Association of Bermuda International Companies that the threat of US tax law changes punitive to the Island was now "extremely real".

He cited Ace's decision to redomicile its holding company to Switzerland earlier this year as a "warning bell" and urged Government to do more to ensure that Bermuda was able to attract — and retain — "the best and the brightest", who were driving the Island's economy.

Mr. McGavick, who took over the reins at XL from Brian O'Hara in May this year, ran unsuccessfully for a US Senate seat as a Republican candidate in 2006 and also served as chief of staff for US Senator Slade Gorton.

Talking about the tax threat, Mr. McGavick said the view he'd heard widely in Bermuda was that "we've seen this come and go before", and that political rhetoric did not translate into policy.

"I will tell you categorically that is wrong," Mr. McGavick said. "The threat this time around is extremely real."

Without a united effort to address the threat over the coming nine months to a year, Mr. McGavick said he expected that "tax regimes that are punitive to Bermuda and other countries will become law".

America's desperate need for funding, the feeling that "the US taxpayer is being taken advantage of" being widespread, and Democratic Party control of the White House, Senate and House of Representatives, all pointed to the threat being greater this time, Mr. McGavick said.

The US "will be worse off" for any tax change that negatively impacts Bermuda's insurance industry, Mr. McGavick said, adding that he and XL would do all they could to "make sure that foolishness does not come to pass".

All countries were competing for human and financial capital, and Bermuda had three particular advantages, Mr. McGavick said — regulation, tax and talent.

He said the decision of "one of our closest brethren" to redomicile was not a good sign. Ace moved its holding company from the Cayman Islands to Switzerland in July, and its annual general meetings from Bermuda to Zurich.

"I guarantee that the financial decisions on where a company is domiciled matter," Mr. McGavick said, adding that some start-ups that would in the past have automatically been expected to set up in Bermuda had gone elsewhere. This was "a canary in the mine", he said.

The Island had been highly successful in bringing together some of the world's best talents in the insurance industry, but attracting more — and keeping them here — was essential for the Island to continue to prosper in the marketplace.

Government had to balance its desire to create opportunities for its own citizens with the desire to attract "the best and the brightest" from overseas, Mr. McGavick said.

"I would suggest that the balance is not at the correct weight, otherwise we would see more talent coming here and sticking here for a longer time," Mr. McGavick said.

He questioned the strategy of being more concerned about protecting unskilled jobs — which contributed the least towards society — than in attracting outstanding talent to ensure the best workforce possible. That talent could easily flee, as never in human history had the global workforce been more flexible and mobile, he said.

"Bermuda is not exceptional in putting up barriers against the most educated and trying to keep the weakest jobs in place," Mr. McGavick said. "I believe that the countries that do the best job of flipping that approach on its head will be the most successful in future."

He added that he was proud of XL's record in creating opportunities for Bermudians, a trend he hoped would continue to grow.

The Island's regulatory advantage, which has centred on allowing insurance companies to incorporate and open for business much faster than elsewhere, will face challenges too, Mr. McGavick added. Excellent progress had been made by the Bermuda Monetary Authority in raising the standard of regulation, he added, but that process needed to be accelerated, "because we are about to see a worldwide explosion in regulation", typical of the response to financial crises in the past.

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