HAMILTON, Bermuda -- The new building rising up the road from the cruise-ship dock is the most visible sign that international business has eclipsed tourism as economic king here. The Bermudiana Hotel, where Woodrow Wilson once slept, has been razed. Under construction in its place: future headquarters of two major reinsurance companies, XL Capital Ltd. and Ace Ltd.

The project frames a prosperous picture of this lush Atlantic Ocean Island. By attracting American insurers with its lax regulation and low taxes, Bermuda has achieved what many small countries long to do: In less than two decades, it has transformed itself by reducing its dependence on tourism and building a healthy, white-collar economy.

But beneath the glistening facade, trouble is brewing. Some of the 60,000 residents of this 22-square-mile Island, which sits about 700 miles east of the Carolinas, are struggling to adapt to a computerized world of numbers-crunching. While insurance has created jobs, the most coveted senior positions go to expatriates, creating cultural, economic and racial rifts that contributed to the 1998 ouster of Bermuda's conservative leaders after 35 years.

"Many people feel they are being overlooked for the top jobs in international business,'' says Jamal Hart, 31, who bypassed his father's parasail business by getting an accounting degree at American International College in Amherst, Massachusetts. He works for the phone company, and only dreams of someday hopping to a better-paying job in the insurance industry.

Responding to such concerns, the liberal Progressive Labor Party has made it harder for foreigners to get work permits and proposed limiting to nine years the time they can stay here. Already, they are barred from buying homes that cost less than about $2 million; as a result, most rent housing.

The crackdown has alienated some employers. William Williams, who manages $10 billion of investment-grade bonds, says hiring delays drove him last July to return his firm to Santa Barbara, California, after six years. Of 22 employees, three were Bermudian. "The new Government made it difficult for us to get work permits and hampered our ability to attract long-term candidates,'' Mr. Williams says. "There was obviously going to be interference with our operation going forward.'' Despite the discontent, Bermuda remains supremely prosperous. While its robust economic growth slowed to two percent in its fiscal year ended March 31, there is virtually no unemployment and the Country maintains one of the highest per capita incomes in the world.

"Anyone who wants a job has one,'' says Raymond Russell, a member of the Country's labour union. "We are a lucky little country. A lot of places would love to have our problems.'' Becoming an insurance hub is just the latest economic makeover in Bermuda's history. Founded by shipwrecked sailors in the early 1600s, it bridged from buccaneering to farming, earning worldwide fame for its onions. But as its farmers became stymied by steep tariffs and competition, Bermuda marketed its pink-sand beaches and coral reefs to become a tourist hot spot, wooing the likes of Eleanor Roosevelt and Mark Twain, who romanticised it as "the right country for a jaded man to loaf in''.

Tourism remained the main economic engine until the mid-1980s, when the industry began to suffer as less-expensive destinations with year-round beach weather beckoned American vacationers. "Did you even hear of Costa Rica ten years ago?'' asks Bermuda Tourism Minister David Allen. Indeed, the number of visitors here has dropped by about a third during the past decade to 300,000.

The last new hotel, the Fairmont Southampton Princess, opened in 1973. Club Med and Marriott both closed resort hotels here, saying they couldn't afford to operate.

Fortunately, just as tourism began to soften, insurance began to take off when Robert Clements, then president of Marsh & McLennan Cos., persuaded 34 corporations to set up their own insurance company in 1986. His brainchild, Ace, was followed by hundreds of re-insurers, or wholesalers who offer insurance to other insurers, along with catastrophic and "captive'' re-insurers -- those created by corporations to insure themselves.

Today, insurance companies, money managers and other "international businesses'', with assets of $116 billion, collectively contribute more money to Bermuda's economy than any industry. These businesses also are the second-largest employer, with 3,191 jobs, compared with 3,473 for tourism.

Bermuda citizens hold about 80 percent of all international-business jobs, but few of the best-paying ones. The problem, for many Bermudians, is that they don't have the right training or background for these positions. "The new business is about networking and intellectual capital,'' says Joe Babiec, a consultant at the Monitor Group in Boston, who was hired to help boost tourism. "It's unprecedented here. You just can't take a bellhop and turn him into an insurance underwriter.'' An Ace spokeswoman adds: "On an Island of 60,000, it's difficult to find all the skills and experience we need.'' Of the company's 230 Bermuda-based employees, 75 percent are citizens.

Adding to the frustration, the "guest workers'' who fill most of the senior jobs happen to be predominately white, while 70 percent of Bermudians are black. "The new economy has brought to the surface at least the perception of racial inequity,'' says Calvin Smith, a member of the Senate for the Progressive Labor Party and head of the Island's credit union.

In hopes of getting better jobs in financial services, citizens whose families have worked in tourism for generations increasingly are getting degrees abroad and attending new insurance courses at the Island's sole, two-year college and a new insurance institute funded by major insurers. Still, many claim they are relegated to ancillary and low-level jobs. When Ronnie Burgess lost her job as a Marriott Hotel switchboard operator, she combed the international-business market. "The best I could find is a temp job,'' she says. So, she settled for answering phones at a doctor's office.

In some ways, the growth of the insurance industry has widened the economic disparity here. Expatriates, with paychecks big enough to allow them to dominate waterfront homes and private schools, are driving up costs on the Island. And they routinely pay $10,000 a month or more for rent.

"The Government became lackadaisical about tourism and was not preparing locals to work in the new business they were growing,'' asserts Cromwell Shakir, who runs a barber shop. "The new economy has left many people behind.'' The tension, and the Government's resultant decision to become more parsimonious with work permits, has some worried that the Country's insurance industry's continued growth can't be taken for granted. Other countries, such as Ireland, with an abundant educated work force and lower costs of doing business, are actively wooing insurance companies. Competing offshore jurisdictions could become more appealing for insurers if they shed bank-secrecy laws that give them a dubious reputation, which Bermuda has avoided.

"Unlike factories or hotels, international businesses are collections of people with knowledge of information that can be applied to any problem anywhere around the world...it would be easy and cheap for them to go'' if Bermuda became unattractive for foreign businesses, says Robert Stewart, who recently retired as head of Royal Dutch/Shell Group's Bermuda subsidiary and now works as a money manager.

If companies go elsewhere, it would be hard to replace any lost jobs. As a result, Mr. Stewart says he is starting to wonder how long the premise of his new book will last. Its title: `Why Bermuda's Economy Works'.

Talking up tourism: Tourism Minister David Allen is busy promoting the island.

Boom town: the Ace-Excel building signals the strength of the island economy.