P/C Pros Defend Bermuda’s Domicile Dominance
Bermuda will remain a center for the property/casualty reinsurance business for a long time to come even as the island nation fights against foreign regulation and insurance industry changes.
The island’s insurance marketplace remains “well regulated, but flexible” and will continue to be an attractive venue for P/C companies for the foreseeable future.
“In that mile and half in Hamilton there are so many people doing business that the brokers need to come and the clients come,” said Susan Patschak, CEO of Canopius Underwriting Bermuda. “I don’t think you will find a similar environment in Zurich and Dublin.”
Patschak and other industry professionals made their comments at the Annual Bermuda Financial Services Conference held in New York last week.
Bermuda has come under fire recently over the favorable tax status that P/C companies receive.
Most notably, Bermuda companies with U.S subsidiaries are allowed to shift premiums sold in the U.S. back to the island nation where they are taxed at a significantly lower rate.
This summer Rep. Richard Neal (D-Mass.) reintroduced legislation that would essentially block the ability of U.S. subsidiaries to move premium back to Bermuda for favorable treatment.
Bermuda also spent on the Organization for Economic Co-operation & Development “Grey List” of countries that have not fully implemented global tax standards. The country was moved up to the so-called “white list” in June after initiating number changes.
The proposal from Rep. Neal is not something new and Bermuda has been dealing with the threat of foreign regulation for some time, said Jonathan Reiss, a Partner with Ernst & Young in Bermuda.
“These types of proposal have been around for the past ten years,” Reiss said. “As people peel back they will learn that [Bermuda] is very different. We feel we are better positioned.”
If the Neal bill is passed, Patschak said P/C companies will likely choose one of two options: raise rates for U.S. cedants to make up for the lost revenue or close U.S. subsidiaries and consolidate operations in Bermuda.
“Many will consider ‘Do you really need a U.S. presence,” she said. “But right now there is a lot a rhetoric but not much action.”
Bermuda — which currently holds 45 percent of all P/C premiums written — will not lose any companies because of it’s established reinsurance market and proximity to both U.S. and London, said David Cash, chief underwriting officer of Endurance Specialty Holdings.
“London has its strengths, but its [market] is not as profitable,” Cash said. “And a large part of its business comes from the U.S. and its 3000 miles a way. Going to London to write U.S. insurance business does not compute.”
Despite the Bermuda market’s confidence, it has suffered defections recently.
Last month Willis Group Holdings Ltd. announced that it was planning to re-domesticate from Bermuda to Ireland to gain “a more stable environment” for it’s operations and shareholders.
Participants at the conference dismissed the announcement, adding that although Willis the world’s third largest insurance broker it was not the type of pure reinsurance company that would thrive in Bermuda.
Additionally, the Willis announcement simply reefers to the firm’s holding company and it will not impact any operations, said Brad Adderley, a partner with law firm Appleby in Bermuda.
“That fact that [Willis] has insurance next to it means that it gets more play in the media,” Adderley said. “The actual holding company has no employees in Bermuda.”
Reiss agreed, adding that Bermuda holding companies often change venues frequently with little effect on the country as an insurance domicile.
“It’s really no concern at all when those types of companies decided to leave Bermuda,” Reiss said. “I would put that in the category of not really insurance and reinsurance companies.”
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