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10 September 2022ArticleAnalysis

Why Bermuda?

For the past 60 years Bermuda has been the domicile of choice for hundreds of captive insurance companies. 

One of the primary reasons has to be the fact that down the years various governments of Bermuda, whatever their political persuasion, have actively encouraged all kinds of insurance companies, from captives to reinsurers, to move to, or at least have a presence in, Bermuda. Over the past 70-odd years Bermuda has shifted from a major base for the Royal Navy to a tourist destination, as well as an offshore financial centre, although recent events such as the COVID-19 pandemic have done severe damage to the tourist trade, with cruise liners cancelling trips altogether during lockdowns and quarantine rules. 

As a result, the government of Bermuda is focusing more and more on the Island as a financial centre, and trying to attract more business to it. At the heart of Bermuda’s attraction as a domicile is its regulatory system, which has been widely praised for its open attitude towards businesses. The creation of the first captives in 1962 was very much a leap into the unknown. Much is made of Fred Reiss realising that captives could flourish on Bermuda, but it was the then government that gave the concept the green light and made it easier for captives to be created on the Island. Without one there could not be the other.

The creation of the Bermuda Monetary Authority (BMA) in 1969 to act a regulator for the increasing number of companies arriving on the Island was another step in the right direction. The BMA has been acknowledged as an organisation that listens to companies and lays down sensible, common-sense regulations, with 50 years-plus experience of the supervision of financial institutions. 

The BMA’s approach to supervision is risk-based and includes a “proportionality” principle that allows it to calibrate its regulation of captive insurers in a manner that reflects the lower regulatory risks they pose. Bermuda has made sure that its commercial insurance regime has regulatory equivalence with Europe’s Solvency II regime. Bermuda operates a bifurcated regulatory model, which means that the capital requirements for captive insurers are usually considerably less onerous than those applicable to commercial insurers in Bermuda.


“The government of Bermuda has made strenuous efforts to keep its place as a modern, attractive destination for all kinds of businesses.”



Bermuda’s place in the world
There is also the advantage of Bermuda’s political position. As a British Overseas Territory, Bermuda is a self-governing but dependent territory of the UK and is subject to the external relations of the UK. It has a stable political system and a robust, independent and efficient court system that upholds the rule of law, including a specialist Commercial Court that determines insurance and company matters. 

Its highest court of appeal is the Judicial Committee of the Privy Council of the UK. The present Bermuda government continues to follow the precedent set by earlier administrations and pursue a pro-business agenda making Bermuda a favourable environment in which to establish an insurance entity. 

Bermuda captive insurers are registered under the Insurance Act 1978. This prohibits anyone carrying on insurance business in or from within Bermuda without being registered under the act or unless they benefit from a statutory exemption. The supervision and inspection of entities registered under the Insurance Act is the responsibility of the BMA, which keeps a keen eye on applications.

In a 2021 report on Bermuda’s place in the captives market, law firm Kennedys stated that most captive insurers on the Island are managed by highly experienced insurance managers based in Bermuda. Insurance managers are able to discharge, under the supervision of the board of directors of a captive insurer, most executive functions of the captive insurer, underwriting, claims, finance, investment and compliance functions and to assist with the purchase of outward reinsurance. 

As Kennedys points out, captive insurers must be bodies corporate and are registered under the Bermuda Companies Act 1981. Bermuda law permits the registration of companies that are exempt from local requirements for ownership and control by Bermudians. “Exempted companies” may be wholly owned and controlled by international subscribers.

However there remains a widespread perception in some areas, whether governments or the media, that Bermuda is a place where people or companies can register to avoid paying tax. Three years ago, the government of Bermuda became embroiled in a dispute with the EU when the Island was named on the EU’s blacklist of 15 countries it said fail to meet good tax governance standards.

However, Bermuda was subsequently removed from the list after it submitted details of regulatory tweaks and other changes it had made to be compliant with the EU’s listing requirements.

As Kennedys points out: “Bermuda has robust laws to combat risks of money-laundering and terrorist financing, having attained the highest level of technical compliance of any of the 75 or so jurisdictions reviewed in mutual evaluation reports published by 2020 by the Financial Action Task Force (FATF).“Accordingly, Bermuda service providers conduct due diligence on the proposed ultimate beneficial owners of Bermuda captive insurers. Strict rules apply in relation to persons connected with countries designated by FATF as high-risk or as having inadequate systems and controls to combat money-laundering and terrorist financing.

”All the advantages and points listed above are factors that must keep up with the constant pace of change—not just in the world of insurance but also in the wider world. The government of Bermuda has made strenuous efforts to keep its place as a modern, attractive destination for all kinds of businesses. And there is very little to indicate that this will change at any time in the near future—the last election was in October 2020 and the next is not due for several years at least.