30 May 2013Analysis

Going great guns

The captive industry has experienced another strong year, with the market proving remarkably buoyant. Numbers continue to increase, both in Bermuda and globally, and despite suggestions that there must be a limit to growth at some point, we continue to see numbers increasing, in spite of a relatively soft commercial market. Helping to drive interest in the captive offering are the increasing numbers of risk managers who are looking at captives as an alternative mechanism for risk financing and I think that this is a trend that is set to continue.

Tax information exchange agreements (TIEAs)—which have been an increasingly prominent feature of the captive landscape—have played their part, strengthening the position of the captive industry internationally. Bermuda has signed a host of international agreements over the past few years that have helped to promote further transparency and placed the domicile at the very forefront of global jurisdictions. Such steps are part of wider efforts being taken by the industry to dispel misperceptions regarding the motivations behind establishing a captive and opting to domicile it in a particular jurisdiction. TIEAs and cooperation with bodies such as the Organisation for Economic Co-operation and Development and the International Association of Insurance Supervisors can only help in this push and I think that the more agreements the Island and the wider industry can sign, the faster we will be able to dispel such myths. TIEAs and international agreements continue to play an invaluable role in getting people comfortable with the captive concept, together with increasing some specific opportunities.

"TIEAS and international agreements continue to play an invaluable role in getting people comfortable with the captive concept."

However, international agreements have not all been plain sailing for the industry. Continuing delays over Solvency II are creating some frustrations within the industry and there is a continuing fear in Europe that its full force will be applied to the captive sector. I am happy to say that the captive industry here in Bermuda has been spared Solvency II’s remit. The Bermuda Monetary Authority (BMA) has stated quite categorically that they will not be applying Solvency II type regulations to limited purpose insurers, captives among them. We believe that theclassification system here in Bermuda has enabled us to have a truly segmented market, one that allows us to apply equivalency to the commercial market, while maintaining existing capital and solvency requirements set in place by the BMA for the captive sector. Turning to the international stage, we have had good discussions with the European Insurance and Occupational Pensions Authority (EIOPA) in recent years and hope Europe will recognise that captives are not commercial players; rather they are risk management tools and as such should be treated accordingly.

Meanwhile, the Bermuda Insurance Management Association (BIMA) continues to push for greater education in the captive sector, with BIMA hosting its second annual Education Summit in May. Education is very much a focus for us. We now help to facilitate a summer internship for those looking to enter the captive industry, as well as a scholarship to attain an associateship qualification in captive insurance through the International Center for Captive Insurance Education. We have also gone through considerable dialogue with the regulators here in Bermuda and at EIOPA and have established a very positive understanding with both regulators. Much of the hard work has now been done from a regulatory perspective in establishing the captive position here and internationally, but we continue to pursue positive engagement with both regulators.

Looking ahead we see significant opportunities for growth in Canada, Latin America and the US, as well as within the mid-sized market. We are also pushing to develop what is an already sizable healthcare sector. This is tied in with efforts by the wider insurance and business community here in Bermuda to develop our presence in these markets and we see significant opportunities ahead. These are set to be interesting times for the captive market here in Bermuda as the industry shows great promise in spite of headwinds.

Lawrence Bird is president of the Bermuda Insurance Management Association. He can be contacted at: lawrence.bird@marsh.com