29 May 2014Analysis

Building on past successes

Bermuda continues to evolve and develop its offering for global captives. Robert Paton of BIMA talks us through its recent achievements.

The Bermuda insurance market and the captive arena in general showed its resilience and strength over the past year. New captives registered in 2013 doubled the total recorded in 2012 and again reflected Bermuda’s position as the leading captive domicile.

The foresight and appropriate risk-based supervision of the Bermuda Monetary Authority (BMA) led to growth in all classes of insurers, with a 72 percent increase in insurance registrations in 2013 compared to 2012, with 91 new insurance companies registered.

This growth across the range of Bermuda insurance classes provides the Bermuda captive industry with unique access to the insurance and reinsurance markets, as well as the innovation apparent in the insurance-linked securities, segregated account company and alternative risk transfer markets.

Additionally, the BMA’s risk-based approach allows for the appropriate regulation of each class, and the risks assumed, as illustrated by the recent change in reporting requirements to bring the Class 3 regime (up to 50 percent unrelated business) in line with the Class 1 and 2 categories with a six-month reporting requirement.

Overall captive numbers in Bermuda have remained steady over the past few years, a symbol of Bermuda’s maturity in the captive space, with a number of captives reaching the end of their natural life cycles. Often overlooked, and perhaps of equal importance to a captive owner, is the ability to exit a captive or an alternative risk transfer structure and again Bermuda has the appropriate expertise and structures in place to assist with an orderly and timely exit.

Of note in the game of numbers for domicile comparison is that to date Bermuda has not publicly provided information relating to the number of cells included in each segregated account company. Many of these new cell owners would have been new entrants to the alternative risk transfer market and could otherwise have been classified as Class 1, 2 or 3 captives. The industry is looking forward in 2014 and 2015 to receiving the data regarding these cells in order to facilitate a true domicile-to-domicile comparison.

Of equal significance to Bermuda is that despite a certain amount of noise in the area of redomestications, we have seen very limited activity over the past few years and certainly no noticeable upward trend. Indeed as noted by Shelby Weldon, director, licensing and authorisation at the BMA: “During the first seven months of 2013, no Bermuda captives have redomiciled to other jurisdictions, either onshore or offshore. Overall, during the past three years, a total of 12 captives have moved to another location.”

In the global captive marketplace there has been a proliferation of captive jurisdictions, but as the saying goes ‘imitation is the sincerest form of flattery’. While clearly leading to increased competition, it would appear that the captive-alternative risk transfer market is here to stay and will continue to flourish. Bermuda is not, however, resting on its laurels and the creation of the Bermuda Business Development Agency (BDA) in 2013 through the merger of the Insurance Development Council and Business Bermuda is recognition of the need for a common strategy for business development to target new business opportunities and to retain and sustain existing business.

Joining forces

The BDA aims to present the strengths of Bermuda as a business domicile and draws upon the resources of the Government of Bermuda, the BMA and industry groups such as the Bermuda Insurance Management Association (BIMA). The drivers of the BDA are its focus groups, of which the Captive Focus Group has taken a proactive approach with the formation of sub-committees to promote Bermuda geographically into Canada, Latin America and the US.

In addition, a sub-committee has been formed to identify key areas within one of our largest captive sectors, the healthcare industry, to ensure that the benefits of Bermuda in the captive space and the overall insurance and reinsurance markets are clearly identified to captive owners, particularly with the expected expansion and changes due to the Affordable Care Act in the US.

A sub-committee was also formed to review and evaluate legislative changes to assist the captive industry, specifically in relation to incorporated cell legislation. The BDA is expected to take a key and leading role in presenting a unified and consistent message with the support of the captive industry and an identifiable Bermuda message can be expected in the next year at key captive conferences.

In all areas of business, tax and legislation there continue to be challenges, which will almost certainly continue into the foreseeable future. Whether it is the Nonadmitted Reinsurance and Reform Act 2010, the Cascading Federal Excise Tax or the Foreign Account Tax and Compliance Act (FATCA), considerable questions remain for captive owners. While we can be cautiously optimistic with cases such as Rent-a-Center Inc v Commissioner and Validus Reinsurance, Ltd v United States of America concerning deductibles and cascading tax respectively, it seems clear that to fully serve our clients continuous education will be key. The BIMA is committed to ensuring that its membership remains at the forefront of these issues and are provided with appropriate skills and continuous training. During 2013 this entailed a one-day seminar in May devoted to captive-specific issues and, in September, at the request of the membership, a half-day session specifically related to FATCA.

The Bermuda Captive Conference reached record numbers in 2013 and continues to grow and develop. Of note were the sessions held in Spanish for our Latin American clients and prospects. In addition to the educational value of the sessions, it was particularly pleasing to be able to present Dawnette Darrell, a Bermudian professional in the industry, with her Associate in Captive Insurance certification after she completed the course under the BIMA scholarship programme. Given that ‘the only certain thing is change’, education and continual professional development will be a key driver in the success of the industry.

2013 was an exciting year in Bermuda with the increase in incorporations, record numbers attending the Bermuda Captive Conference and the formation of the Bermuda BDA to drive new business. We look forward to building on these successes in 2014. l