23 June 2014Analysis

Latin potential

As Bermuda looks to develop the potential of the Latin American market, it will find itself in an enviable position vis-à-vis the competition. The Island will be able to draw upon, apply and adapt the not inconsiderable experience it has gained writing risks in North America and Europe to new South American risks.

It is evident that its experiences have placed the Island in good stead, with the number of Latin American captives that now call Bermuda home continuing to grow. As Shelby Weldon, director of licensing and authorisation at the Bermuda Monetary Authority (BMA) explained, “The attributes of the Bermuda captive market that attracted US and EU corporates, resonate with the Latin America market as well.” Increasing numbers are seeking out Bermuda’s shores.

There is a lot to attract Latin American parents to the Bermuda market—from both a captive and a wider insurance and reinsurance perspective. As Weldon outlined, “Bermuda is a pragmatic and practical regulator, has a globally significant reinsurance market that entrants can access, and enjoys proximity to the East Coast of the US.” For Latin American parent companies, its strengths have prompted a spike in interest.

Looking at statistics from the BMA it is apparent that Latin American captives form a substantial part of new captive growth on the Island. Of the 24 captives formed in 2013, 30 percent of them were from the Latin American region said Weldon, with Colombia, Peru and Chile leading the charge. He said that increased engagement with the region in recent years has yielded considerable success for the Island and its captive sector. And there are knock-on benefits for those in the reinsurance and service provider communities. Large, single parent captives, which make up the bulk of new Latin American captives, are availing themselves of the full range of captive and reinsurance services.

Bob Svensk, CEO of Latin American Underwriters, said that Bermuda has a leading role to play in bringing the captive concept to the region. “Where the local markets are not as well developed as they are in Europe or the US, what a great way for the major corporates in the region to access the world’s leading risk market.” Bermuda’s reputation and capabilities will set it apart from the competition, he said, adding that the strength of the Island’s reinsurance market means that captives can reinsure their risks, “while not having to worry about primary insurance regulation in places such as Paraguay, for example”.

“When you are considering a captive domicile, you want to go where there’s underwriting expertise,” said Svensk. “Bermuda is the logical choice with the expertise, reinsurance capacity and strong corporate ethos—in terms of both transparency and integrity—to set itself apart. It’s a known commodity.” He added that Bermuda’s location will also likely play its part—“as I can’t see Latin parents going to Vermont”. Bermuda will be hoping that it can add a third vector to its traditional transatlantic dominance, this time hailing from Latin America.

Bermuda is meanwhile taking the fight for Latin America business to the region. Through a range of outreach activities and conferences, the Island is burnishing its credentials right across the continent. David Gibbons, director of the captive insurance group at PwC Bermuda said: “Bermuda is taking a proactive approach to developing the potential of the Latin American market. In fact the level of economic growth in the Latin American market is now outstripping that in North America.

“Companies in South America are now at a stage of their local, regional and/or global operations to recognise significant benefits from the formation of their own captives.”

He said that there are considerable opportunities for the Bermuda market in the region, with the Island pursuing tax information exchange agreements with partner countries. “There has been a lot of captive growth emanating from Colombia and Mexico specifically, and a lot of interest from Peru and Chile, which has the potential to translate into significant formations,” said Gibbons.

Weldon said: “Island events such as the Bermuda Captive Conference have recognised the significance of the Latin American market, with the conference now having dedicated sessions in Spanish, while the Island has organised marketing and conference trips to Latin America to talk about captive solutions.” Robert Paton, president of the Bermuda Insurance Management Association, said that the Spanish sessions had been well received and that they have helped to drive record numbers at the event. Gibbons added that Bermuda has Spanish speakers right across its captive sector, who can explain in detail the captive concept to potential participants from the region.

This is all part of a market-wide effort to encourage South American parent companies to consider Bermuda front and centre when looking to establish a captive. While the BMA is not leading the measures—with the market and the newly formed Bermuda Business Development Agency taking a lead in driving business growth from the region—it is apparent from talking with Weldon that the regulator is highly supportive of the development of the Latin American captive segment. With Latin American captives representing such a significant part of recent growth, it is clear why the BMA is supportive of new opportunities in the region.

Addressing the form of Latin American captives domiciled or considering Bermuda, Weldon said that most will be underwriting property risk, with large single parent corporates making up the lion’s share of new entrants into the Bermuda market.

“We are seeing a lot of manufacturing and industrial corporates from Latin America exploring the potential of placing their risks in a captive. They are using their captive as a vehicle not only to access Bermuda expertise, but also the international reinsurance market that helps to deliver considerable credit control around their risk management function,” said Weldon.

Again, Bermuda’s unrivalled reinsurance market should help to set it apart from other domiciles looking to develop Latin American business.