Is there a clear reason why offshore reinsurance centres are becoming so attractive? asks Kenneth McKenzie.
One can't help sensing a certain ambivalence about Bermuda. Is it a crucial and complementary part of the increasingly global reinsurance market mechanism, or is it in competition with London? It might depend on who you asked. London players are strongly represented in the Class of 2005/2006. But why?
One infrequently cited reason for setting up in Bermuda may be the less prescriptive rules on director liability and disqualification – no wrongful trading. Bermudian company bylaws can exonerate directors and officers from all liability save for fraud and dishonesty. In the UK the Company Law Reform Bill is on its way to the statute book, but with nothing so attractive to offer.
Is it the absence of tax? The Financial Services Authority seems to think so. Lloyd's says it is talking to the Treasury about options for helping it better compete with low tax insurance centres and that the Treasury is receptive to such suggestions. But one has to doubt the capacity and the political will in Britain to deliver such a result. Even if it is just tax, other tax friendly locations like the Channel Islands might perhaps wonder why they can't be quite so successful at attracting the major players.
Is it the light regulatory framework and lawyers who know their way around it? If the UK was thinking of easing regulation, there are few outward signs of it. The Lord Mayor of London recently drew attention to the anti-competitive threat posed by over regulation and cited Bermuda as a prime example of the beneficiaries of such over regulation. Regulators, like nature, abhor a vacuum, and will expand into any space not already occupied by clear law.
One thing the UK could do is seek to improve its competitiveness by improving its underlying law. With the Law Commission and Scottish Law Commission's initiative to review insurance contract law in the UK comes the possibility that insurance and reinsurance law will eventually be reformed and, with the closeness of the UK and Bermudian legal regimes, the influence of those changes is likely to be felt more widely than in the UK alone.