11 September 2022ArticleAnalysis

Bermuda targets quality captives

The captive insurance sector is the foundation of Bermuda’s risk market as it celebrates the 60th anniversary of captives appearing on the Island. As David Hart, chief executive of the Bermuda Business Development Agency (BDA) puts it, the captives industry was born, raised and perfected there, so it’s very special to the Island.A way that the BDA supports the captive insurance sector includes the inaugural risk summit in March 2022, which included a captive panel which, Hart says, did an outstanding job. 

The BDA also led a mission with BDA chairman Stephen Weinstein and Bermuda’s Premier David Burt to the RIMS conference in San Francisco, held in person for the first time in two years, which Hart viewed as a very important event to the captives sector.“If I had to make a prediction, a safe one is that when we hold our second risk summit in March 2023 there will be a captive insurance segment and panel at that conference as well,” Hart told Captive International, adding that he wanted in particular to commend his colleague Helen Souza, the BDA business development manager, for recent developments.

“She came on board at the BDA shortly after I did in October 2021 with a vision that we should relaunch a captives working group within the BDA, to show the partnership between the BDA and the captive sector to help it continue to grow and expand.”

“When we hold our second risk summit in March 2023 there will be a captive insurance segment and panel at that conference as well.”

David Hart, BDA

Souza stressed that captives are a part of the foundation of the risk pillar in Bermuda and have been for 60 years, so the BDA has been marking that anniversary throughout the year, as well as relaunching its captive focus group in collaboration with the Bermuda Captive Network.

The reason for that, according to Souza, is that the BDA does not want to duplicate or dilute—it wants to complement, to add value and to promote and protect the captive insurance business in Bermuda.“The BDA is the glue that binds and bridges the gap between public and private,” said Souza. “In these focus groups we’ve been discussing things that are emerging from a macro level that we need to be aware of in terms of how that’s going to impact our business here in Bermuda, such as economic substance.

”Most recently the BDA identified some key themes from an economic substance perspective out of its focus group. This allowed the BDA to work with KPMG and the Bermuda Captive Network to host an economic substance presentation that addressed some of these key themes.“For captive managers economic substance is quite an important topic for regulation at the moment,” said Souza. “We are making sure we’re aware of the key themes around that particular piece of regulation and it’s important that we are compliant.”Other key themes the BDA identified include tax residency, which it describes as significant; board meetings; full-time employees; corporate service providers; and beneficial owners.

“Bermuda continues to innovate and shine as a domicile of choice.”

Helen Souza, BDA

On the road

The BDA is planning to increase its roadshows because its mission, beyond protecting and being aware of and growing what’s already on the Island, is promoting Bermuda overseas. In the current market environment, with some of the new emerging risks, there is opportunity for people to take risk in-house and self-insure, so captives are becoming more attractive again, Souza said.In terms of destinations for these roadshows, the BDA is particularly looking at Canada, where a lot of success and growth in the captives space has come in the wake of BDA-hosted roadshows there over the last five years.“A lot of the opportunities the BDA is now seeing in the pipeline have been from similar roadshows, so while it takes some time to bear fruit, it’s worth the grit and hard work in stressing the benefits of Bermuda,” Souza said.

“What makes Bermuda a premier domicile for captives at the moment?” she asked. “We’ve talked about this at roundtables recently, and I would say it’s our proximity not only to key financial markets but also to one another. We’re shoulder to shoulder with the C-suite decision-makers here, things happen very quickly, and speed to market is key.“There’s intellectual capital, the pure pool of talent we have in Bermuda that’s been built up as a result of the captive industry’s being born here, and there’s our innovation.

”Bermuda has gone from captives to special purpose insurers to cat bonds, sidecars, and digital asset legislation in the crypto space—Bermuda continues to innovate and shine as a domicile of choice for that, Souza said.“There is the proximity to the regulator, the Bermuda Monetary Authority (BMA), whose principles-based fit-for-purpose regulation is very well respected. The reputation of the jurisdiction is as a blue-chip domicile. Long gone are the days when people try to avoid regulation—now they want to work in the most pragmatically regulated, most respected and most reputable jurisdiction, and Bermuda ticks all those boxes.

”It’s a theme that Hart also stressed. “It’s worth underscoring our efforts to travel the globe to tell the Bermuda story and speak of Bermuda’s attributes. We have such a strong human capital pool on the Island, with the sophisticated, savvy, innovation-friendly regulator in the BMA.“We talk about a lot of opportunities in Bermuda across several sectors, but certainly including the captives area as we make our way to jurisdictions such as London, New York, or Toronto,” he said.The BDA is happy to support the captive sector in Bermuda as a sponsor of the Bermuda Captive Conference in September.

The BDA recognises that Bermuda as a unique captive insurance domicile has a large commercial re/insurance sector along with over 90 percent of the insurance-linked securities market.Bermuda is often called the world’s risk capital and to the BDA this is true, because it’s like no other place in the insurance world—other areas or domiciles might have parts of the market but no other place has everything in the way that Bermuda does.“If you look at the insurance industry in Bermuda and all the little offshoots that come out of it, we had captives and that was a foundation,” concluded Souza.“It grew out—commercial P&C evolved, then the excess liability market, the D&O market, and then there was a branching out into the alternative risk space with the convergence market.“There are all these little offshoots from the insurance industry in Bermuda—we have evolved into this amazing marketplace.”