It may be all change in terms of government, but Bermuda has seen little change in its popularity
The initial frisson that went through Bermuda's international business community in November 1998 when the Progressive Labour Party (PLP) swept to victory in the general election soon gave way to a sense that the new government was, indeed, pro-business, as it had stated.
In the first few months since the election, the government has not just made positive statements about the value of international business to the island but has also tackled some practical aspects of helping the business community, such as looking at work permits and the residency status of non-Bermudians who have lived on the island for 20 years or more.
The most recent statistics available on captive formation only cover additions to the register of insurance companies to the end of November 1998, so are unlikely to indicate any anxiety - or otherwise - about the election. Although final figures to 31 December 1998 have not yet been published, informal indications are that the picture will have been much the same as in 1997.
Registrar of companies, Kymn Astwood, says as a preliminary figure that more than 90 new companies were registered in Bermuda in 1998, across all classes. Tillinghast Tower-Perrin's annual Captive Insurance Company Directory puts the number at 94 of which it estimates about two-thirds are operating as captives.Statistics from Mr Astwood's department indicated that in the first 11 months of 1998, a total of 81 new insurance companies were added to the register. Of these 16 were class one (1997 - 13), there were 17 new class two companies (24) and 33 new class three companies, of which a number are captives.The official figures from the registrar of companies show that the total number of company formations and removals from the register remained quite stable between the first 11 months of 1997 and of 1998. There had been a net gain of 11 new companies by 30 November 1997 and 13 new companies by 30 November 1998, when the total on the register reached 1,500 for the first time.
Growth, however, was not even across the types of company. In 1998 compared to 1997, there was a larger increase in class one companies, which are pure, single owner captives, and class three companies, which include larger captives writing more than 20% third party business and commercial insurance companies. Class two companies, which are captives writing up to 20% third party business or with multiple owners, saw a drop in the number of new formations.
Commenting on this trend, Mr Astwood last year suggested that some companies which might have fallen within the class two category opted to register as class three for the greater flexibility this gave them to write third party business.
Nick Dove, chairman of the Bermuda Insurance Managers Association (BIMA) and president of Skandia International Risk Management Ltd, has experience of a company that did not intend initially to write a significant amount of third party business but opted for class three registration to have the freedom to do so.Mr Dove also mentions that the push to attract healthcare captives, traditionally associated with the Cayman Islands after some early regulatory restrictions in Bermuda, is proving successful. Tillinghast's Captive Insurance Company Report lists a number of new healthcare captives domiciled in Bermuda.An area which the BIMA hopes to develop soon in Bermuda is the rent-a-captive or captive cell concept, for which new legislation will be needed. At the moment, rent-a-captives are possible but require a private act of parliament. A rent-a-captive is set up by a third party, usually a professional manager, to handle the risks for multiple sponsors who can “rent” cells or units in the facility rather than having to set up a stand-alone company.The Captive Insurance Company Directory this year lists 70 such companies of which 17 were set up in 1998. Both the Cayman Island and Guernsey have been successfully promoting what are described as segregated portfolio companies (SPC) or private cell companies (PCC) respectively.
Bermuda, like other low or no tax domiciles which are dependencies of members of the Organisation for Economic Co-operation and Development (OECD), is coming under scrutiny as part of the OECD's investigation into what it regards as “harmful tax practices” in the form of tax havens. The aim of the inquiry is to identify harmful activities and recommend harmonising legislation to OECD members.
Bermuda as a dependent territory of the United Kingdom with a zero tax rate would be caught up in the OECD's net, but Bermuda's argument is that it is not a tax haven, but that it has a tax structure which is appropriate to its own needs. The new government has been lobbying the OECD to that effect.
Writing in the Bermuda quarterly business magazine, The Bottom Line, Warren Cabral, head of insurance at solicitors Appleby, Spurling & Kempe, points out that the main shareholder base of most Bermuda insurers - captives and commercial ventures alike - is from the United States or the United Kingdom. Both countries have comprehensive Controlled Foreign Corporation legislation, which significantly reduces the ability of sponsors to gain from incorporating subsidiaries in low tax regimes. Bermuda, he says, has successfully operated with this legislation for many years.
“Companies typically incorporate in Bermuda for regulatory reasons or for reasons of the co-ordination in a neutral place of global transactions or multi-party, multi-national deals.”