Fifteen of the world’s top 50 reinsurers are based in Bermuda, according to a report on the global reinsurance market by ratings agency AM Best.The report, which bases its rankings on the amount of gross premiums written by reinsurers last year, rates ninth-placed PartnerRe as the largest Bermuda-based reinsurer with gross premiums written of $4.6 billion, with Everest Re close behind in 11th place on $4.28 billion.The figure of 15 includes only groups whose holding companies are based in Bermuda. It doesn’t include companies such as Ace, XL, Flagstone Re and Allied World Assurance Company, who all make the top 50 and have substantial underwriting operations on the island.The report, entitled ‘Reinsurers show resilience under weight of catastrophes, economic woes’, also suggests that Bermuda reinsurers shouldered more of the burden of insured losses from last year’s high incidence of natural disasters than their European rivals.Bermuda reinsurers’ underwriting results have been propped up in recent years by the release of reserves set aside for prior-year events. But the report’s authors, analysts Robert DeRose and Greg Reisner, expect such releases to dry up in future, adding pressure on underwriting margins.Renewals firmed up at the start of this year after last year’s huge catastrophe losses, but thanks to ample capacity, pricing improvements dwindled as the year went on, the report states.The authors also highlight further efforts by the US reinsurance lobby for the US Government to enact tax changes and add that a shift in tax policy could prompt an exodus of companies out of Bermuda.Testifying before a US House subcommittee in May on behalf of the Reinsurance Association of America, the report points out that Michael Sapnar, president and chief executive officer of Transatlantic Re, called for the following:— Each reinsurer should be allowed to be regulated by a single authority, which would be empowered to pre-empt conflicting or inconsistent state rules.— The Federal Insurance Office should work with international regulators and use its power to enter agreements with other countries.— The United States should lower its top corporate tax rate, currently the highest in the world, and implement broad corporate tax reform.High US tax rates largely explain the popularity of domiciles such as Bermuda, Ireland and Switzerland, AM Best states.“But even offshore reinsurers live in fear that the US government will seek to tax more of the income they earn in the United States, the world’s biggest reinsurance market,” the report states.“Bermuda-based insurers and reinsurers walk a tightrope continually, to the point of taking extreme care with what types of management issues are discussed on US soil versus in Bermuda. A slip could open a company to US tax liability that the Bermuda domicile is intended to prevent.“For various reasons, some Bermuda-domiciled companies already have moved their headquarters to Ireland or Switzerland, which have established tax treaties with the United States. Taxes may be higher than in Bermuda, but they’re lower than in the United States, and less subject to change. A shift in US tax policy toward Bermuda could prompt a further exodus.”In recent years, Flagstone Re and Allied World moved their corporate domiciles from Bermuda to Luxembourg and Switzerland, respectively, while others, whose operational headquarters were here, such as Ace and XL, have also shifted their base to Europe.Over the past year, Bermuda has become home to start-ups backed by US hedge funds, including Third Point Re, SAC Re and PaCRe and the report spelled out the attraction for them.“For now, however, Bermuda remains attractive even to newcomers, such as the hedge funds that are a growing source of capital to the reinsurance market,” the report said.“These investment vehicles, like generations of reinsurers before them, are looking to Bermuda as a haven to avoid paying US tax rates on their insurance-related income.“Unofficial reports abound of hedge funds holding discussions with Bermuda-based companies over various reinsurance vehicles to be based on the Island.“A property catastrophe writer with peak zone exposure may find the tax implications of a Bermuda domicile versus the United States are essentially a wash while low interest rates persist.“Since this environment produces little investment income to be exposed to the US corporate tax rate, primarily underwriting income remains in play, and on a net, after-tax basis, various scenarios comparing the two domiciles cancel one another out.”