The best of both worlds
Shelby Weldon, the director of licensing and authorisations at the Bermuda Monetary Authority (BMA), believes Bermuda will benefit from securing equivalence with Solvency II this year but, critically, the captives sector is exempt from the regulations. Weldon argues that this way Bermuda gets the best of both worlds—the credibility and enhancement to reputation because of Solvency II but the flexibility to continue to regulate captives as it always has.
“All this is important because it ends any uncertainty around regulation. It also gives Bermuda a huge amount of credibility because the European regulator has confirmed that our regulatory regime is in accordance with international standards and is equivalent in its robustness to Solvency II,” Weldon says.
“At the same time, the captives sector remains untouched in terms of the way it is regulated, meaning it continues to benefit from our regime as it always has.”
He stresses that captives still represent the foundation of the insurance market on Bermuda and remain vitally important to industry, the government and the overall health of the economy.
“Even as other sectors such as insurance-linked securities (ILS) have grown significantly, most industry stakeholders will still agree that captives remain the true bedrock of the industry here.”
Weldon has the benefit of perspective when making such claims. He has been involved in regulation and supervision of Bermuda since 1995. Until 2001, he was inspector of companies in the Registrar of Companies Department. In 2006 he was promoted to his current post and is now a member of the BMA executive. As such, he has seen much change on Bermuda in the past 20 years.
“The commercial insurance sector is huge now and is changing and evolving rapidly,” he says, “but the captives sector remains a very important part of the economy here.
“We are blessed with many globally significant captive managers and their importance has never lessened in the eyes of the BMA.”
He says one reason for Bermuda’s success in dealing with regulators in other countries has been its collaborative approach with business bodies and other trade associations on the Island. This has always been one of Bermuda’s strengths, and the Island’s small geographical size gives it that advantage. That has paid dividends in recent years in particular.
“AROUND 25 PERCENT OF THE NEW FORMATIONS LAST YEAR CAME FROM LATIN AMERICA AND IT IS FANTASTIC THAT BERMUDA IS BECOMING THE DOMICILE OF CHOICE FOR THAT REGION.”
“We are a small country and sectors such as financial services have always been very important to us. We have worked in cooperation with business a great deal to ensure we always conduct a robust process of consultation with all stakeholders to ensure regulations are thought through and appropriate.
“There can be a lot of toing and froing between stakeholders at times but that ensures that we are not only completely compliant from a regulatory standpoint but also that we protect the reputation of the Island and operate in a manner that is designed to help the whole business community with what it is trying to achieve,” he says.
While there has been no shift in the regulatory landscape for captives, Bermuda’s regulator has made some key changes in other areas. One of these has been the introduction of an electronic filing system earlier this year that companies may use to file their accounts.
Although it is not mandatory yet, most companies have welcomed the change, which also makes it much easier for the BMA to check and analyse the accounts filed by companies—and also easier to isolate any warning signs that suggest a particular entity may need more oversight.
“This was an important change for us on a number of fronts,” Weldon says. “The first objective was, given the sheer number of companies we regulate, to utilise technology as efficiently as possible to make that system of annual returns more efficient.
“Second, once we have the information in that format, it gives us the ability to conduct real-time analysis of the information by sorting by a certain key ratio, for example. That means, in turn, that we can offer a better level of supervision for companies that may need extra attention.
“Third, it also saves time for companies. Previously, it was a manual process that had to be completed by following several different steps. Most companies welcomed these changes because they knew it would save them a lot of time.”
For the remainder of 2016 the Electronic Statutory Financial Return (E-SFR) is a voluntary option for companies but from 2017 E-SFR will become a legislative requirement.
Moving forward, Weldon says the focus for the regulator will be on assisting other bodies such as the Bermuda Business Development Agency (BDA) with a process of education around captives, both on home soil and via the trade missions it organises to countries such as Canada and regions such as Latin America.
“We are seeing a spike in registrations from some of those markets because of trips arranged there previously. We can help the process of attracting business and I believe that Solvency II equivalence also enhances the credibility of Bermuda in this context.”
He adds that as well as its very experienced and sophisticated regulator, another big attraction of Bermuda for captives is the expertise on the Island in terms of risk and the easy availability of reinsurance capacity.
“It is an increasingly competitive market, especially with more and more US states passing legislation and competing in this space, but we will not shy away from competition. We have a great story and we believe we remain the premier domicile for captives in what is an increasingly completive space.”
Captive registrations on the rise
There was an increase in the number of captives incorporated in Bermuda in 2015 compared with 2014.
Sixty-five insurers were registered in 2015, the same figure as last year. Twenty-two new captives were registered, compared with 17 in 2014.
Weldon attributes the rise in captive formations to the specific efforts of a number of bodies on Bermuda to market the benefits of both captives and Bermuda, often in the face of growing competition from other domiciles including an increasing number of US states that have passed captives legislation.
“The BDA in particular has done some fantastic work marketing Bermuda overseas and attracting captives as a result,” Weldon says.
“Around 25 percent of the new formations last year came from Latin America and it is fantastic that Bermuda is becoming the domicile of choice for that region. We hope to see increased growth from this area going forward.”
He adds that while it is almost impossible to predict numbers of formations, the start of the year—traditionally a slower period for new formations—has been very positive, with five new formations to the end of April.
“It is tough to predict but that would suggest we will exceed or get close to 22 new formations again this year.”
Shelby Weldon is the director of licensing and authorisation at the Bermuda Monetary Authority. For more information visit www.bma.bm