ANAHEIM, California -- Leading onshore domicile Vermont might have been something of a worry to Bermuda a few years ago. Indeed, Vermont out paced Bermuda in its share of captive incorporations for two straight years in 1989 and 1990.

But it seems now that changes to US tax laws and domestic captive regulation, which created the opportunity for US insurers to move their captives onshore, may well have caused Bermuda to compete more aggressively to increase its market share.

In 1991, Bermuda based insurers were able to reverse a four-year downward slide that saw the number of registered insurance companies drop to 1,312 in 1990 from 1,344 in 1987. Meanwhile, Vermont incorporations nearly doubled to 209 in the same four-year period.

But by the end of 1991 new incorporations for Bermuda totalled 64, and with 53 removals represented a net increase of 11. Vermont saw the pace of new incorporations drop off dramatically during the year to 25 at the end of 1991 from 35 the previous year.

While the two jurisdictions are not direct competitors, they are representative of the ongoing debate facing US insurers whether to domesticate their captives or keep them offshore.

"A lot of companies are moving onshore for tax purposes,'' said Mr. Greg Myers, who is coordinating a session on the subject at this year's Risk and Management Insurance Management Society (RIMS) conference.

"But there are still a lot of advantages in remaining in Bermuda. It's still the largest captive domicile and its banking services and its whole infrastructure make the advantages of remaining offshore greater than moving onshore.'' Nevertheless, Mr. Myers, vice president of California-based Becher and Carlson Risk Management Inc., said annual changes to US tax laws have led to some speculation that the US Government could introduce measures to further penalise US insurers for keeping their captives offshore. He said one such measure might involve increasing excise taxes.

Mr. Meyers, whose session is titled "Domesticating your Offshore Captive: Exploring the Alternatives'', said there are significant costs both in remaining offshore and in moving a captive onshore.

"I think on a percentage basis, you will see a greater percentage choosing to set up offshore,'' he said. "There are great benefits to being offshore -- there is access to the European market, and you have the big advantage of access to the offshore reinsurance market.'' Director of Captive Insurance for the Vermont Department of Banking, Insurance and Securities Mr. Leonard D. Crouse said the changes to tax laws made it more feasible for US corporations to move their captives stateside. He said Vermont was seeing some business, possibly one to two captives a year, moving its way from Bermuda.

"For a parent company with its corporate headquarters in the US, access may be a little easier,'' he said. "It may also be a little less expensive to do business in Vermont -- not just for tax considerations but also for travel purposes, the cost of holding board meetings out of the country, for example the cost of a hotel in Vermont versus that cost in Bermuda.'' He too said Bermuda was a leader and added that Vermont's real competition was with other onshore domiciles like Colorado, Illinois and Hawaii.

He said there were other factors at work that could also draw business away from Bermuda, including the formation this year of a single market in Europe.

"There are some major players in Europe now, and they're growing,'' he said.

"They will all take a bit away from Bermuda.

"There are other domiciles in the business, and now people have a choice of where to place their captive. There is the northeast US, the western US, Europe, the UK, and now you've got the Pacific Rim.'' Nevertheless, Bermuda's Registrar of Companies Mr. Malcolm Butterfield said that despite increased competition from the growth in domiciles over the past five to six years, "Bermuda continues to show levels of growth and maturity and is still able to hold onto its business because of the respect people have for our business, not just as a captive domicile but as an international business centre''.

He refuted the claim that Vermont was taking business away from Bermuda saying: "There is no foundation for that as far as I am concerned.'' But he said Vermont and every other domicile represented increased competition for Bermuda. He said that competition made the Island's captive industry leaders work more competitively and perform better than the rest.

"We pride ourselves on our quality,'' Mr. Butterfield said. "It is trying to maintain that quality that's keeping us on our toes.

"I think we will continue to see growth at modest levels. I believe Bermuda has a lot more to offer -- we are a proven and diversified domicile. Unlike the others, we offer the concept of one stop shopping. We not only have our captive managers, we also have our reinsurers ACE, XL and Centre Re. That places us in a very advantageous position.''