Angry Reaction from Bermuda on Calls for S&P 500 De-listing

December 11, 2002

Eugene Cox, Bermuda’s Finance Minister, reacted angrily to calls from several state officials, including California Treasurer Phil Angelides, to drop 10 “offshore” companies, including ACE and XL, from Standard & Poor’s 500 stock index.

The demands are the latest round in the ongoing war between officials who see potential tax revenues escaping their clutches, and companies located off shore, sometimes for tax reasons, but in many cases for other business purposes.

According to a report from Reuters News Agency, Cox said that “actions to limit the involvement of Bermuda-based companies in the world economy are shortsighted and nonsensical.” He added that the companies in question were doing nothing illegal, conducted legitimate businesses, and “contribute much to the world economy, and in the area of insurance are recognized world leaders.”

Officials in California, Connecticut, Maine, Massachusetts, Wyoming, Kentucky, Oregon, Iowa, and New York have called for Noble Corp., Cooper Industries Inc., XL Capital Ltd. ACE Ltd., Tyco International Ltd. and Ingersoll-Rand Co., all of whom are registered in Bermuda, to be de-listed from the S&P 500 index, a leading benchmark for stock market performance comprised of 500 of the largest companies traded on U.S. exchanges.

Reuters pointed out that the two insurance companies on the list, ACE and XL, were both incorporated in the Cayman Islands, and were never domiciled in the U.S. (Ed. Note – Technically true, unless one considers ACE a successor of INA). Both companies do have extensive operations in the U.S., and do pay taxes on income they earn there. They’ve repeatedly stressed that tax avoidance is not the reason they are located in Bermuda.

Both companies were established shortly after hurricane Andrew caused $15 billion (around $18 billion in today’s values) in losses in 1992. September 11 caused a similar number of new insurers to be formed in Bermuda, mostly backed with U.S. capital. As the island’s authorities have pointed out, Bermuda strictly regulates the types of companies that are allowed to locate there, and accepts only legitimate strongly capitalized operations.

The main reason for locating on the island is the ease with which companies can be established and conduct their business. It took less than three months to set up a half a dozen new insurers and reinsurers with over $10 billion in capital following Sept. 11. That would have been virtually impossible in the U.S. or Europe.

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