Offshore no more: Insurer XL Capital latest global company to drop Caymans haven for Ireland

Insurer XL Capital finds new haven in Ireland

SAN JUAN, Puerto Rico — Global insurer XL Capital said Tuesday it wants to move its place of incorporation to Ireland from the Cayman Islands, another sign that offshore financial havens are losing some of their allure amid increased international scrutiny.

XL Capital plans to ask shareholders to approve the change in coming months and complete the transaction July 1. CEO Michael McGavick said in a phone interview the move would improve the company’s access to Europe, as well as its reputation.

He declined to discuss XL’s motivation in detail, saying, “We just prefer Ireland as the holding company domicile and that’s the reason for this change.”

Thousands of international companies and hedge funds have traditionally been incorporated in offshore financial centers in the Caribbean and elsewhere, drawn by low tax rates and banking rules and legal systems that make it easy to move capital around the globe.

But U.S. and European lawmakers and regulators are considering a number of proposals aimed at cracking down on abuses and collecting more tax revenue from multinational operations.

Offshore financial centers such as the Cayman Islands, the British Virgin Islands and the Bahamas, have scrambled to sign new international tax treaties and defend an industry that has flourished as an alternative to tourism.

XL Capital noted the increasingly negative outlook for offshore financial centers in a filing with the U.S. Securities and Exchange Commission.

“We are subject to reputational, political, tax and other risks because of negative publicity regarding companies that are incorporated in jurisdictions, including the Cayman Islands, whose economies have low rates of, or no, direct taxation,” the company said in a proxy statement.

XL Capital has no employees in the Cayman Islands and McGavick said he has not traveled to the British territory once during his 18-month tenure as CEO. The operational headquarters will remain in Bermuda, but more than half the board meetings will be in Ireland to comply with regulations for establishing a holding company there, McGavick said.

Others that have recently shifted their holding companies include insurance broker Willis Group Holdings Ltd. and insurer ACE Ltd., both moving to Ireland from Bermuda.

Richard Murphy, a British accountant and founder of the blog Tax Research UK, said fear of new regulation is largely behind the moves. He says Ireland is a popular choice because it is a low-tax jurisdiction without the stigma of a tax haven.

“It’s pretty ideal and yet it appears to be a fully integrated European headquarters location,” Murphy said. “There is a vast amount of money flowing through Ireland these days.”

Some 80,000 companies are registered in the Cayman Islands, which has a population of about 52,000. Ted Bravakis, a spokesman for the Ministry of Financial Services, said the recession has hurt the financial sector, but the number of hedge funds domiciled in the territory in 2009 was down just under 4 percent from 2008. The number of captive insurance companies was up 2 percent.

“Business interest in Cayman’s financial services sector remains strong,” Bravakis said in an e-mail.