Balancing innovation and stability

The captives industry represents the cornerstone of the re/insurance and risk transfer markets on Bermuda while also representing a fantastic example how a combination of innovation and regulatory stability can help a market grow and flourish long term.

That is according to Michael Dunkley, the premier of Bermuda, who stresses that Bermuda’s leadership in this sector is unquestioned and beyond reproach. He notes the $32.9 billion the sector generated in gross written premiums in 2013 (the latest full-year figures available), the $125 billion in assets the sector holds and the $53 billion in report capital and surplus.

“Captives represent the bedrock of our insurance offering and the way the sector has developed and flourished is a fantastic case study in what Bermuda offers in terms of innovation and regulatory stability,” Dunkley says. “Its roots go back to the 1970s when we were at the forefront of product development and that has developed into a substantial industry and globally accepted risk transfer technique.”

Dunkley says the opportunities created by Bermuda’s foremost position in the captives sector created complementary opportunities in the development of the commercial insurance sector. He says the leadership shown in the former meant the expertise and structures were in place to allow the innovation in the latter.

“The key word here is innovation,” he says. “The world changes rapidly and, as is the case with so many things in life, we managed to successfully grasp an opportunity and then had the stability and infrastructure to successfully grasp that opportunity and move it forward and capture it over many years despite many challenges and wider change.”

He says that the greatest of those challenges has been the changing regulatory landscape with Bermuda having to adjust and work alongside shifts in the outlook of other regulatory regimes globally.

“We have always been able to adjust as a regulator to any changes required while providing continuity and stability—attributes that have been the cornerstone of our success over the years. That regulatory stability has meant we are recognised globally as a good regulator. Combine that with our determination to offer a first class service and our willingness to listen to clients and stakeholders and you go a long way to understanding our growth and success.”

Dunkley admits that there is greater competition among domiciles within the captives space, with both onshore and offshore jurisdictions seeking to capture this business. But he remains confident that Bermuda can remain number one because of the wide range of attractions it offers.

“There are many more options now certainly compared with 10 years ago but we are a domicile with vast experience, an excellent reputation and the willingness to innovate to ensure we remain at the cutting edge of this sector.

“We have broad shoulders and we will never rest on our laurels. We have discussed the first-class regulatory offering we have here but you also have to consider what a beautiful place Bermuda is to do business and the deep pool of experience and expertise we have here—we speak the language of captives in a stunning location. There are not too many other places that can offer such a full and appealing offering as we do.”

Part of the reason for Bermuda’s success has been the government and regulator’s strong links with businesses on the Island which takes the form of both formal and informal links and dialogue with representative industry bodies.

“These links have been critical to our success on every front,” Dunkley says. “I have said in numerous presentations that our success during our long history has always been achieved on the basis of very strong partnerships between government and business.”

He says the way the Island has coped with the challenges of Solvency II represents a good example of this partnership working at its best. Representatives from business bodies and the regulator had extensive dialogue with regulators in Brussels to make the case for Bermuda’s equivalence with Solvency II in relation to commercial insurance but also the exemption of the captives sector from this arrangement—a deal regarded as a good solution by the captives market on Bermuda.

“It did represent a great example of us working together,” says Dunkley. “We have a responsibility to create a foundation to ensure we remain successful and we pool our expertise and resources to make the right decisions and right arguments where needed.

“Communication is vital between government and industry—it ensures our ongoing stability. The challenges will never wane but the BMA has demonstrated real quality in some of the challenges it has faced in recent years complemented by this great relationship with businesses here. It is very well respected by other regulators and that helps our standing in the world.”

He notes there are other reasons for good communication—with both businesses and other countries. In the run-up to the recent UK election, for example, Bermuda and other offshore domiciles came under criticism from Labour leader Ed Miliband who effectively branded the jurisdiction a tax haven.

“We had to react to that swiftly and decisively,” Dunkley says. “I wrote to Ed Miliband and explained what we do and that I looked forward to working with him if he came to power. That hasn’t come to pass but it is yet another example that communication on all fronts is so important for us here.”

But the biggest challenge remains creating the right balance between allowing the market the freedom to innovate and providing the right level of regulatory oversight.

“It is the balance we must always be mindful of,” he says. “We have a quality supervisory environment and a unique value proposition with very high quality products and services.

“We need to remain abreast of legislative changes elsewhere and make regulatory adjustments when needed while also inspiring confidence from the market and having the freedom and flexibility to take advantage of opportunities when they emerge. If we can continue to do that, we will remain successful.”