The London branch of professional services firm Deloitte is calling for a tax break aimed at property catastrophe insurers to halt the exodus of insurers to Bermuda, The Financial Times reported this week.

The firm has warned that the departure of Lloyd's underwriters like Hiscox and Catlin, along with the boom in the formation of catastrophe reinsurance companies in Bermuda, could encourage other financial services companies to follow suit.

Deloitte has proposed a tax concession based on new capital reporting requirements introduced by the Financial Services Authority two years ago, which led to property catastrophe insurers carrying more capital, the FT said.

Tax partner Bill Dodwell said the risk models required by the FSA could be used to design a tax regime that would reflect the insurers' need to hold back profits some years in preparation for large payouts.

Lis Gibson, insurance partner, said an attractive tax regime would offset the unpopularity of the UK's capital regime for insurers.

Although the Treasury could lose hundreds of millions of pounds in tax some years from the change, it is at risk of losing those revenues entirely as more insurers migrate to Bermuda, attracted by its tax and regulatory regime, she said.

"If property catastrophe decamps to Bermuda, there is an incremental advantage of moving other business . . . You don't want people to peel off and create centres of excellence elsewhere," she said.

The Revenue & Customs figures show that banking, finance and insurance companies paid $8.9bn in tax in 2004-05, up by nearly a fifth from the previous year. The statistics show the Exchequer's reliance on a small number of highly profitable businesses. In 2004-05, 852 companies — 0.1 percent of the total number — paid more than half of the total corporate tax bill.

The Financial Times said those figures made the financial services sector the largest corporate contributor to the Exchequer, and it predicted the statistics would be seized on by industry leaders making a case for tax concessions in the pre-Budget report.

"The resurgence of tax revenues from financial services after their decline at the start of the decade is crucial for meeting public spending commitments. But critics accuse the Treasury of focusing too much on maximising tax receipts, rather than supporting the industry," the newspaper said.

"The Treasury has signalled its willingness to listen to industry concerns through meetings with senior industry figures in its High-Level Group on Financial Services and has promised to continue to work 'to modernise the regulatory and tax framework'."

Financial services leaders have warned that high taxes and stiff regulations are making London uncompetitive. Last month banking giant and Bank of Bermuda owner HSBC Plc said it was considering moving its headquarters because of the tax burden.