Bermuda captives: ahead of the curve


Tom McMahon

Bermuda captives: ahead of the curve

Tom McMahon offers an examination of Bermuda’s captive industry and argues that the Island fully embraces the idea that with great power comes great responsibility.

Bermuda entered the new decade in the same position it has held for the previous four decades since the formation of the world’s first captive—top of the pile. It was the most popular domicile in 2009 for new licences, with 42 additions (compared with 40 in Cayman and 39 in Vermont), and currently leads the table again, with 885 captives as at January 1, 2010, compared with 780 in Cayman and 560 in Vermont. This is testament to the men and women who established and nurtured the captive industry here and set the Island apart from its competitors. The total capital and surplus of the captive sector as at December 31, 2008 amounted to $49.6 billion and total assets amounted to $114 billion. These account for 31 percent and 24 percent respectively of the overall Bermuda insurance market.

Looking to the future, we’re seeing other domiciles upping the ante to compete for new business from the traditional markets in the US and Europe, and the new markets in Latin America, South America, the Middle East and the Far East. We, however, are not resting on the laurels of past achievements but continue to successfully promote Bermuda as the world’s premier domicile. The government and the Bermuda Monetary Authority (BMA) are committed to the captive sector and actively support all related initiatives.

I believe it is worth revisiting the reasons why captives continue to select Bermuda as their domicile of choice, despite increased competition.

• Bermuda enjoys a stable political and economic structure that has stood the test of time. The government has historically been supportive of the captive industry and is committed to its future development.

• The insurance regulatory environment has proved to be effective yet flexible. Using the concept of proportionality, a multi-licensing system has evolved over the years, resulting in a risk-based approach to regulation.

• The Island consistently had, and continues to have, a high level of insurance expertise. It is this expertise that has led to the development of innovative programmes and solutions over the decades.

• Complementing the insurance expertise on the Island isan excellent infrastructure of professional services, such as accountants and auditors, actuaries, bankers and law firms.

• The evolution of Bermuda into a major insurance and reinsurance market has led to the Island being used as a ‘one-stop shop’ for most of an organisation’s insurance purchasing needs.

• Foreign-owned companies are not subject to any form of currency or monetary control. The local currency is the Bermuda dollar, which is pegged at par to the US dollar, which also circulates on the Island.

• Bermuda has no taxation on profits, dividends or income tax, nor are there any capital gains or gift taxes. The only form of taxation imposed on insurance and reinsurance companies are the annual registration and licensing fees.

• Bermuda is on the Office for Economic Co-operation and Development’s white list of jurisdictions that have complied with its tax standard. The Island has signed 20 Tax Information Exchange Agreements (TIEAs) with other countries.

• The Island’s geographical proximity to the United States has been an advantage over the years, coupled with daily non-stop flights from many gateway cities. In addition, no one will deny that its subtropical climate and charm as a premier tourist resort have helped in the evolution of Bermuda into the domicile it is.

As we move further into this new decade, the captive industry faces the challenges of struggling economies, volatile financial and currency markets, and a new regulatory regime being implemented in Europe, which could have widespread implications for captives, not just in Europe but possibly in non-European domiciles. And as noted earlier, new geographical regions such as South America and the Far East are increasingly beginning to explore the world of captive insurance.

"The respect for, and interest in, Bermuda that the emerging markets in Latin and South America have evidenced by the decision of ALARYS (Latin American RIMS) to hold its annual conference on the Island this year."

With its position as the world’s premier captive domicile comes the responsibility to provide leadership as the industry faces the challenges before it. Bermuda has not abdicated this responsibility in the past—evidenced by the Island’s role in establishing the International Association of Insurance Supervisors (IAIS). Personnelfrom the BMA sit on many IAIS subcommittees. Today, Bermuda is reaching out to its captive colleagues in Europe as well as other offshore domiciles as we lobby to protect the interests of captives and captive owners in advance of the implementation of Solvency II. In addition, Bermuda itself is working towards achieving Solvency II equivalency, and I am sure a number of other domiciles will be looking at the formula adopted here.

The respect for, and interest in, Bermuda that the emerging markets in Latin and South America have is evidenced by the decision of ALARYS (Latin American RIMS) to hold its annual conference on the Island this year. The conference is being hosted by the Bermuda Insurance Managers Association and the Bermuda Insurance Development Council, and is scheduled for October 11-13. Meanwhile, our own captive conference goes from strength to strength and we are looking forward to our sixth conference on June 28-30.

Tom McMahon is the president of the Bermuda Insurance Managers Association. He can be contacted at:

Captive International