Bermuda: still top dog

30-11-2010

Bermuda Captive

Bermuda remains the world's leading captive domicile. Bermuda Captive examines the ingredients of its ongoing success.

Bermuda remains the number one captive domicile in terms of captive numbers, with 845 captives now resident on the Island, but questions have been raised in some quarters regarding whether Bermuda has been unseated from its top spot by Vermont. Recent statistics found that Vermont trumps Bermuda in terms of assets under management and premiums written, but for those involved in Bermuda’s captive industry, there seems little concern that Bermuda’s leading position will be surpassed any time soon. Bermuda welcomed 35 new re/insurers of various classes and 10 intermediaries during 2010, according to fi gures from the Bermuda Monetary Authority (BMA), and it seems likely that 2011 will add further numbers to an already impressive bench. And despite suggestions that Vermont might catch, or have surpassed, Bermuda in its captive offering, the Island’s captive sector increased its level of gross written premiums by 66 percent in 2010, up from $19.6 billion in 2009 to $32.6 billion. It seems that those things that make Bermuda an exciting and world-beating location to set up a captive remain unchanged—speed to market, a responsive regulatory regime, a business-friendly environment—and speaking with those on the Island, it is evident that Bermuda’s captive industry is confident that the Island’s offering will enable it to retain its position as number one.

Conditions for regulatory excellence

One of the key positive differentiators that continues to set Bermuda apart from the competition is the strength of its regulatory regime, which, with the implementation of Solvency II equivalence, will once more position it at the forefront of global domiciles. The new regime will undoubtedly place some additional burden on the Island’s captives—specifically in terms of risk reporting—but speaking with experts in the sector, it is evident that the captive industry is confi dent that the BMA’s application of the principle of proportionality will mean that regulatory requirements will be appropriate to the sector. Additional regulatory demands will come into force in the coming months as Solvency II equivalence is rolled out, but the strength of Bermuda’s existing regulatory environment should place the Island’s captives in good stead to adapt to the additional measures. Capital requirements should not prove too troublesome for the Island’s captive sector, and risk reporting and corporate good governance have been overseen and strengthened by the BMA for some time now. What the new regime will do however is place Bermuda within the pool of European and equivalent domiciles whose regulatory regimes are perceived globally as being exemplary, enabling Bermuda to retain and further build on its already leading global position.

Further strengthening Bermuda’s captive offering will be its new code of conduct, which is due to come into force on July 1. Issued by the BMA, the code will place additional responsibilities on the Island’s captive sector relating to corporate practices. Areas covered by the new code will include corporate governance, risk management, governance mechanisms, market discipline and disclosure, with the new measures designed to further strengthen business practices on the Island. Such measures chime in well with the motivations behind Solvency II and look set to further enhance the corporate environment within which Bermuda’s captives operate. Some additional demands will be inherent in conforming to the new code, but significant elements of the code are already an inherent part of the day-today best practices of global corporates. It therefore seems likely that any additional burdens will be relatively light, while the code itself will serve as a further positive in Bermuda’s positioning as a leading captive domicile.

A shining example

Whilst proactive regulatory developments have undoubtedly helped to keep the Island at the forefront of people’s minds, reputation continues to play a key role in keeping Bermuda there. Speaking with experts in the captive sector—and from a diverse range of captive jurisdictions—it is evident that Bermuda remains the leading offshore domicile, perhaps the leading domicile full-stop. Its excellence has enabled Bermuda to attract the captives of an impressive array of global corporations, with the Island regarded as the obvious choice for offshore captive business. And considered within the wider captive context, Bermuda is more than capable of competing with the onshore competition. Its international footprint, high level ofinterconnectivity with leading global markets and its enviable pool of insurance expertise suggest that Bermuda’s reputational edge isn’t going to go away any time soon.

Bermuda boasts an enviable pool of expertise such that the Island punches well above its relative weight. Leading global re/insurers, a responsive and well-regarded regulator in the BMA, captive managers, accountancy firms, law practices well-versed in the intricacies of insurance, and a host of other captive service providers, all serve to make the Island a one-stop shop for captive re/insurance. Such expertise has meant that the Island has consistently been at the forefront of captive product innovation, with the strength of Bermuda’s re/ insurance bench providing additional bite to its already world-class captive offering.

"Leading global re/insurers, a responsive and well-regarded regulator in the BMA, captive managers, accountancy firms, law practives well-versed in the intricacies of insurance, and a host of other captive service providers, all serve to make the Island a one-stop shop for captive re/insurance."

Further helping matters is the fact that Bermuda’s reputation is built on a captive industry that is neither geographically nor industryspecific, with captives from a diverse range of sectors and geographies drawn to the Island’s welcoming shores. Initially a favourite with corporate America, the Island has managed to attract increasing numbers of corporates from Europe, and more recently Asia, with organisations such as Business Bermuda helping to showcase the strengths of the domicile in various international forums. And it is from these ‘non-traditional’ centres—in the words of the BMA—that Bermuda has sought to secure its new business, with Asian corporates helping to further strengthen the Island’s captive bench. The diversity of sectors represented by the captive industry in Bermuda has also helped it maintain its leading position, with the captive sector less impacted by fluctuations in specific industry sectors and able to learn from, and build upon, the particular lessons and nuances of specific lines. The diversity of lines has also meant that any corporateconsidering a new or additional captive will at the very least consider Bermuda as a potential domicile, with many placing it at the top of any jurisdictional list.

The turn, when it comes

Whilst the last couple of years have been relatively flat for captive growth thanks to soft market conditions in the commercial sector, there is some expectation that a turn in the commercial market will come sometime soon. Events in Australia, Japan and New Zealand have made such a development more likely, and while rates in the commercial arena are yet to fully harden—with only cat-hit lines and geographies experiencing any upward movement—there is an increasing expectation that the accumulative impact of events will build to a turn. Such a situation will likely lead to a raft of new formations across various international captive domiciles, and Bermuda will undoubtedly be hoping that it can attract further captive formations to its shores. Those elements that made Bermuda a domicile of choice during previous hard market cycles remain a part of the captive landscape, and now with new, proactive measures such as Solvency II equivalence and the BMA’s code of conduct set to fall into place, Bermuda and its regulator have taken still further steps to set the Island apart from the competition. It would seem that far from being a discouraging factor in determining the choice of captive domicile, Bermuda’s new regulatory measures have served to further cement its reputation as a serious location for international business. And as top dog, further positive action will undoubtedly form a part of Bermuda’s response to the developing needs and scope of the global captive industry as the Island moves forward.

Bermuda, BMA, captive, insurance

Captive International