With a small population in a small geographic area (under 70,000 people in roughly half the size of San Francisco) its budget for infrastructure and development remains small. And its proximity to the USA affords it prime real estate to compete for American business.
On offer to the entities that pass the Bermuda Monetary Authority's (BMA) muster and setup shop in the territory: no taxes on income or capital gains (for company or persons), no branch profit tax, no sales or VAT tax, and no withholding tax. This, coupled with what the Bermuda Stock Exchange (BSX) calls its "light but effective regulatory environment", has made the islands a leader in offshore investment funds and insurance companies, particularly reinsurance. The Association of Bermuda International Companies, which represents international businesses 'interests there, counts "more than 1,500 exempted or international companies currently registered in Bermuda, of whichsome 400 have a physical presence."Additionally, the BMA's annual report for 2009 counted 1,286 registered investment funds in the territory with a net asset value of over US$196 billion. During the same period there were 1,240 registered insurance companies, 467 of which were classified as reinsurers. While total insurers listed a capital and surplus of over US$156 billion, reinsurers comprised a whopping 77% of that total, close to US$122 billion.
Crisis and Catastrophes.
The financial crisis - particularly in the USA, where 80% of visitors and the majority of international businesses that patronize Bermuda come from -has affected the islands' economy. The Ministry of Finance's National Economic Report for 2010 estimates that GDP shrunk 4.0-5.0% in 2010, following a decline of 8.1% in 2009. Moreover, the number of investment funds fell to 955 by the end of 2009, with their total net asset value decreasing to US$147billion, a 25% drop from the year before.The BSX-according to its website "the world's largest offshore, fully electronic securities market"-saw its market capitalization go from a high of approximately US$345 billion in 2006 to$225 billion at the end of 2009.
Bermuda's insurance companies faced not just the financial crisis but a string of catastrophes that hurt the industry. A report in the November2010 issue of "Bermuda Re:insurance"examined "the major insured loss events "from 2005 to 2010. With Hurricane Katrina leading the way at an insured loss estimate of over US$42 billion (at 2010 dollar value), and culminating with the Deepwater Horizon debacle with a cost estimate of US$3.5 billion, it was a tough few years for insurers.
Bouncing Back.
It is by no means all down news for Bermuda's international business sector. During the 2005 to 2010 period, while facing numerous major catastrophes, insurers had US$580 billion in gross premiums written ( more than the previous 20 years combined). In 2009, to address the concerns of the investment community, the BMA released a document to announce that Bermuda's banks exceeded "the Authority's capital requirements and remain in a strong cash position" and that they "did not engage in reckless lending practices associated with sub prime."
At the same time, as a "precautionary measure" the BMA also announced that it was requiring banks to "hold an additional capital buffer to withstand a severe economic downturn." Following on Bermuda's inclusion in the first wave of Solvency II assessments, the planaims "towards securing equivalence with supervisory regimes operated by EU regulators" by developing a framework for supervision of the insurance industry including "rules covering requirements for group solvency and financia lreporting and requirements for group disclosure and eligible capital."
In addition to striving for insurance equivalence, the BMA 2011 business plan lists the strategic imperatives of increasing "supervisory resources and operational efficiency" and "consumer protection". This includes initiatives toreview the banking capital framework, establish deposit insurance, and publish a best practice guide for hedge fund regulation. The BMA will also continue to cooperate with the relevant government organizations to develop and enforce anti-money laundering standards such as increased on-site visits and desk based reviews."
Bermuda is more stable than EU jurisdictions and is ahead of most of the US in terms of regulation" due to "the BMA working directly with the government to create a conducive regulatory environment," says Brad Kading, president of the Association of Bermuda Insurers and Reinsurers. Insuring China In 2008, only US$1.4 billion of the gross premiums written in Bermuda were from Asian domiciled companies, approximately 1% of the total. As China is now ranked 11th in the world ininsurance premiums ceded, attracting this money from Singapore and other destinations preferred by Chinese businesses will be crucial for the island's growth. Interest in Chinese business was put on display with the Tax Information Exchange Agreement signed between China and Bermuda in December of2010, that will substantially ease financial interaction between the two countries.
Despite a lack of insurance clients, here are, however, numerous securities listed on the BSX that have originated from or invested in China, from banks to resources to aviation. "The Island's speed to market is the key to its successas a leader," notes Kading. How this will translate to attaining business from emerging markets, especially those inAsia, half a world away, remains to be seen.
