U.S. insurance industry scandals are turning the attention of regulators and Congress to the islands of Bermuda -- home to 1,600 insurers, or one for every 40 residents of the isolated British territory.
Besides beaches and palm trees, tiny Bermuda promotes itself as the "Insurance Laboratory to the World" and has become a haven for insurers, insurance brokers and reinsurers, which assume other insurers' risks.
Dozens of subpoenas have been issued by U.S. federal and state authorities since November to Bermuda-based insurers including Ace Ltd., RenaissanceRe Holdings Ltd., Arch Capital Group Ltd. and Alea Group Holding.
Investigators from the Securities and Exchange Commission, the Justice Department and New York Atty. Gen. Eliot Spitzer's office are looking into practices including broker and agent pay deals and insurance products that may help companies smooth profits or hide losses.
Spitzer, whose probe into insurance bid rigging last year broke the scandals, has suggested that Congress look at whether insurers "have sought to evade state regulation by locating their operations in Bermuda and other offshore havens."
Some lawmakers in Congress are concerned, mostly from a taxpayer perspective. No formal hearings are scheduled.
Texas Democratic Rep. Lloyd Doggett last month introduced a bill, with 74 co-sponsors, to close tax treaty loopholes that make it profitable for U.S. companies to set up shop in Bermuda and other offshore havens. Michigan Democratic Sen. Carl Levin has probed offshore havens and remains interested.
Bermuda is monitoring the situation. But for now, there are no "hot potatoes" on Capitol Hill, said David Ezekiel, chairman of the Assn. of Bermuda International Companies.
"Every time something like this crops up -- whether Bermuda, Barbados or Cayman -- there is usually some association, some taint, and we just have to again hope that it is reasonably well contained," Ezekiel said.
Spitzer accused insurance broker Marsh & McLennan Cos. in October of steering clients to certain insurers in exchange for lucrative payoffs. In January, Marsh agreed to pay $850 million to settle charges that it colluded with American International Group Inc. and other insurers to fix prices.
Last month, Bermuda-based Ace said it had received 43 subpoenas and other inquiries and demands from regulators and attorneys general in several U.S. states.
This week AIG said its longtime chief, Maurice "Hank" Greenberg, was stepping down in the face of an SEC investigation of numerous AIG transactions.
Greenberg's son, Evan Greenberg, is Ace's chief executive. His older brother, Jeffrey Greenberg, headed Marsh before being ousted last fall after Spitzer sued the company.
Bermuda was rocked this week when AIG said it had fired its Bermuda-based legal counsel, Michael Murphy. Well known as an AIG executive in Bermuda and Washington, Murphy lobbied the U.S. government on the company's behalf. He was "instrumental in negotiation of the U.S.-Bermuda tax treaty," Ezekiel said.
Bermuda has been an offshore business haven since the 1930s. Its focus on insurance expanded greatly in the 1980s with the formation of Ace Ltd. and XL Capital Ltd. Still more expansion came after the Sept. 11, 2001, terrorist attacks on the Pentagon and in New York amid a wave of insurance start-ups.
The SEC declined to comment. Spitzer spokesman Marc Violette said the attorney general's inquiry was continuing.