Probably the last person you would expect to see - or want to see - at an offshore insurance conference would be an Internal Revenue Service agent.

Half the fun of running a business offshore is legally stopping the taxman from biting into your profits for no good reason.

So it came as a surprise to discover that the IRS had enrolled one of its agents at IBC's seventh annual executive forum on captives in Grand Cayman this week.

Officially, his purpose was “to keep abreast of developments in captive insurance”, but many less charitable motives were ascribed to him by other attendees.

The fact is that captive insurance has all but defeated the US tax authorities, as Tim the Taxman's presence underlined.

The IRS's “economic family” argument, which held that risk shifting and distribution could not exist in the context of a single economic family of businesses, collapsed in June, after holding sway for 24 years.

The UPS tax court decision, also earlier this year, dealt another body blow to the hated taxman.

Now segregated cell companies represent the last frontier for the IRS to stop people conducting their legal business offshore and paying no taxes on the proceeds.

The IRS has yet to issue definitive rulings on the subject.

So it was fitting that the high spots of the second full day of this conference were taxation in the morning and segregated cell companies in the afternoon.

Tax lawyer Tom Jones, of Chicago law firm McDermott, Will & Emery, ran the morning session and sat in on the afternoon discussion.

Bermuda knows Mr. Jones very well.

He is a regular speaker at these events and is always good value.

His comments, which were extremely well-attended, centred on the steps necessary to keep the IRS at bay.

In the afternoon, Mark Anderson of KPMG's financial capital strategies practice put up a slide that caused mild palpitations.

It said: “Jersey (1st); Cayman (2nd), Bermuda (3rd)”.

It was an ugly sight, and one was tempted to stand up and shout: “Impossible!”, but it was true enough.

It was the chronological order in which protected cell company legislation had been introduced in the offshore world.

Cayman, which has 40 such companies with 172 cells, now has the lead, but Eugene Justus of Comerica, a Detroit bank active in the offshore community, pointed out to The Royal Gazette that “the big cell company transactions are being done in Bermuda”.

That's alright, then.

The chatter at the conference focussed on one issue, in the main: the fact that Bermuda and Cayman are no longer in competition, really.

As the top two offshore jurisdictions in the world, they have more than enough insurance to go around and, besides, they trade in different areas.

Bermuda is becoming synonymous with reinsurance and property/casualty captives.

Cayman increasingly means health-related captives and cell companies.

It causes apoplexy in the narrow confines of Bermuda Government thinking when anyone says anything nice about Cayman; one reporter almost lost his Bermuda work permit two years ago when he pointed out what Bermuda might learn from Cayman.

That resistance to Cayman is outdated.

Many companies trade in both jurisdictions, and Bermuda presenters were out in force in Cayman this week.

Bank of Butterfield is probably Cayman's largest physical presence bank, and a Cayman company owns Bermuda Cablevision … er, let's move on.

With Bermuda looking to reduce its dependence on insurance and financial services, Cayman is well-positioned to pick up the slack.

Most everyone at the conference agreed that, sooner or later, Bermuda will start turning down new Res, given the perception, widely-held here among even those who have never been to Bermuda, that the Progressive Labour Party is anti-business.

The Cayman's chief insurance regulator, Gordon Rowell, was quick to dismiss such inter-jurisdictional disrespect.

“We never speak badly of other jurisdictions,” he said.

It's a practice that others would do well to adopt.