Bermuda's business community has raised serious concerns over Premier Ewart Brown's pro-independence position and stance of work permits, as revealed in a report obtained by The Royal Gazette.

The report by Dowling & Partners Securities LLC found that the Island was becoming less attractive as a place of domicile due to a multitude of internal and external issues and the majority of international re/insurance companies had a back-up plan in place, including redomiciling altogether, in the event of needing to pull out.

It also cited the continuing high costs of doing business in Bermuda, the increase in violence and the resignation of Matthew Elderfield as CEO of the Bermuda Monetary Authority (BMA), as well as the ongoing threat of US offshore tax legislation and further scrutiny from the Internal Revenue Service and competition from other low tax jurisdictions as the main causes for concern.

"Given the issues faced by Bermuda, by now, most/all companies located on the Island have back-up plans in place (this may include outright redomestication; change in reinsurance structure (from internal to third party reinsurance); change in investment portfolio characteristics (premium formerly ceded offshore moves to US tax-exempt securities)," the report said.

Topping the list of internal issues was the cost base and strain on infrastructure, with the report surmising that the cost of doing business in Bermuda continued to be very high in terms of employee and operating costs, while pressure on infrastructure, from office spaces to schools for ex-patriates, had grown.

The report highlighted the fact that attracting top talent had become an increasing problem as the Island's skilled workforce became more strained.

But one of the key concerns was over the political and social factors impacting Bermuda at the moment.

"The business community is concerned with the pro-independence position of the Island's Premier Ewart Brown (protection of the UK enhances Bermuda's sovereign credit rating), as well as his stance on work permits for expatriates," the report read.

"On the social front, there has been an increase in violence (exacerbated by the economic downturn)."

Also high on the agenda were regulatory issues, with the report concluding that while Bermuda's insurance regulation had been perceived as less robust, the BMA was making significant progress with its new Solvency Capital Requirements, however it added that the Authority had "taken a step backwards" with Mr. Elderfield taking up a new role as Head of Financial Supervision for the Central Bank and Financial Services Authority of Ireland at the start of this year.

On the external front, the report honed in on the offshore tax issue, which it said remained a topic to watch, despite the ongoing healthcare issues, economic stimulus and financial services reform taking centre stage on Capitol Hill in recent months.

"We continue to believe the Obama Administration, with a supporting Democratic Congress, increases the likelihood of passage of US legislation limiting offshore tax advantages, although it's unlikely that HR6969 and/or Senate discussion draft will get any play in 2010," it said.

"Meanwhile, we'd not be surprised if the IRS, in a search for dollars, is not increasingly diligent about how various re/insurers, based in Bermuda, with NetJet executives, conducted business in the US = audits."

The report also pointed out the competition Bermuda faces as a choice of domicile from other jurisdictions, such as Ireland and Switzerland, that offer substantial networks of long-established commercial, tax and other treaties and trade agreements with the US, the European Union and other countries, at the same time as allowing them to maintain a competitive worldwide effective tax rate.

"Unlike Bermuda, a number of European countries are exempt from US excise taxes," it said. "Leading global financial centres (like Switzerland) offer stable and predictable political, economic, regulatory and tax environments.

"While in recent years we've seen an inflow of re/insurers to the Island, this was not the case in 2009. Notably during the year we've seen two Lloyd's ILVs (Beazley & Brit) announce re-domestication plans and where in the past the move has been to Bermuda (Hardy and Hiscox were the two most recent to do so), it was not the case this time. Additionally Willis moved from Bermuda to Ireland."

The report however said that Bermuda still had a lot going for it as a re/insurance market, benefiting from significant tax advantages and its proximity to the US, with four waves of post event capital formation over the past 20 years, resulting in dramatic written premium and capitalisation growth.

It added that the Island had expanded from a predominantly catastrophe and high excess casualty market in the 1980s into other commercial re/insurance lines, with an increased appetite for US specialty re/insurance business.

"We believe that Bermuda will remain an important re/insurance market, however, its role as a major location of domicile is likely to shrink going forward," the report concluded.