LONDON (Reuters) ? More London-based insurers are likely to follow Hiscox and Omega Underwriting to Bermuda, in a bid to compete with rivals already based in the tax haven.

The firms? announcements they are moving their headquarters has re-ignited the debate over whether London can resist the growing challenge from the tiny Atlantic island, which has quickly transformed itself into a leading insurance centre.

Despite the London insurance market?s attempts to overhaul its business practices to make itself a cheaper and more attractive venue, the simple issue of lower tax is an incentive for businesses with international reach, which can be conducted anywhere, to move offshore.

?I think it?s inevitable others will follow us,? said Bronek Masojada, chief executive of Hiscox.

While Masojada said the company?s decision was prompted primarily by the fact that over half the group?s business now comes from the United States and Bermuda, he agreed that ?the tax and regulation issues are a combined second?.

The logic of moving overseas is simple and compelling. Moving to Bermuda means you can cut your tax rate to close to ten percent from around 30 percent in the UK.

?More than halving your tax rate obviously has a fairly substantial effect on your net earnings and your value to shareholders,? said Gerald Farr, insurance analyst at Seymour Pierce.

A move to the tax haven could boost your company?s value to shareholders by up to 20 percent, said Farr.

Dane Douetil, chief executive of Brit Insurance and chairman of an industry taskforce in London, who has championed lower taxes for insurers, said he knew of a number of companies that were ?seriously looking into this?.

Farr said moving to Bermuda could make sense for other Lloyd?s players like Amlin and Wellington. Amlin said it had no immediate plans to redomicile, while Wellington declined to comment.

Moving to Bermuda would only make sense for those companies that specialise in international reinsurance or big-ticket corporate insurance, with an emphasis on business from the United States, as a thriving market for these kind of risks has developed on the Island in the past 20 years.

In fact, remaining based in the UK puts these kind of insurers at ?quite a significant competitive disadvantage? to Bermuda-based rivals, according to Stephen Catlin, chief executive of Catlin Group, the specialist insurer that moved its headquarters from London to Bermuda in 1999.

?You have to consider the value of (moving offshore),? Catlin told a meeting on the fringes of an industry conference in Monte Carlo last week.

Not only does being based in Bermuda make it easier to attract new capital, but it also means companies can often charge lower premiums as well, partly because brokers charge less money to do business there than in London.

?If I were a pure reinsurance operator I would not locate my business in the UK, full stop,? said Douetil.

His company had considered relocating but decided that its big UK operation meant it didn?t make sense to move abroad.

But the City of London now has a problem in maintaining itself as the centre of the international insurance industry said Douetil. ?To be an attractive place to do business then the UK government has to sort out the tax issue,? Douetil said.

Insurers have welcomed the Treasury?s invitation to Lloyd?s chairman Peter Levene to try to fight insurers? case for lower taxes as part of a high-level Treasury group that will discuss how to maintain London?s position as a leading financial centre.

A Treasury source said last week it was keeping an open mind on the tax issue.

But few in the insurance industry are hopeful of any tax cuts in the near future.

?Do I think Gordon Brown will turn into Father Christmas this year? No,? said Douetil.

But he added: ?Providing we can keep up the pressure then as it becomes more obvious that we?re losing business then ultimately the government will have to react.?

For the time being, at least, analysts and industry players agree with Levene, who said last week that the move to redomicile was not a cause for concern to the market.

?The distribution Lloyd?s offers, in terms of the licences to do business in countries across the world, makes Lloyd?s a very attractive place for brokers to do business, despite the additional cost of doing business there,? said Farr.

But the Lloyd?s market should not get complacent, he said.

?It should be a wake-up call to show them they really need to improve the efficiency of the market.

?Because if the infrastructure in Bermuda is allowed to catch up, then maybe Lloyd?s could lose out,? he said.