Bermuda’s continued success as a reinsurance market is based on its low tax, its ability to secure international competitiveness while avoiding over-regulation, and its attractiveness to people who want to work hard and develop new ideas, writes David Sandham.

Although reinsurance rates hardened at January 1 2009 renewals, they did not harden as much as many predicted. “The January renewal period has not proven to be as firm as the market had expected,” says Tatsuhiko Hoshina, president and CEO of Bermuda-based reinsurer Tokio Millennium Re. As James Few, head of property reinsurance, Aspen Re, and Aspen Bermuda’s chief underwriting officer, puts it: “The market has hardened but in a predictably inconsistent manner.” Peak zone catastrophe pricing in the US rose by 20% or more but increases elsewhere – such as European wind (5-10%) – were much more modest. Hoshina and Few agree that the hardening is a trend for the future. Hoshina says: “I think we’ll see a greater hardening of the market.” Few says: “We believe the rating trend during 2009 will continue to be upward.”

According to brokers Guy Carpenter, during the January 1, 2009 renewal process, Bermudian reinsurers “were notably the most stubborn group when demanding more favorable prices, terms, and conditions (from the sellers’ perspective).”

Guy Carpenter attributed this stubbornness to the decrease in Bermudian reinsurers’ capital being due more to catastrophe losses than to asset losses arising from the financial crisis. Guy Carpenter’s Bermuda Composite lost 10.5% of its aggregate shareholders’ equity in the first nine months of last year. Yet, within this group, results varied. Allied World Capital gained 1.5% and was the only firm with an increase in shareholders’ equity. Max Capital sustained the largest loss, 19.5%.


Whereas the change from a soft to a hard market favours reinsurers, the recent political change in the United States could prove problematic. There is a fear in the reinsurance industry that the incoming US administration could target Bermuda as a tax haven. In his election campaign, President Obama, mentioned closing corporate tax loopholes and ensuring that companies pay their fair share. His campaign ran a TV ad that proclaimed: “McCain went to Bermuda, and while he was there pledged to protect tax breaks for American corporations that hide their profits offshore.” The Bill proposed by Democratic US Representative Richard Neal seeks to alter the U.S. tax code for “related party” reinsurance transactions, namely reinsurances to an offshore parent from a US subsidiary. The Neal Bill applies to all international locations, but does not affect unrelated party transactions. It is likely that the Bill will be reintroduced in 2009. It may, says Few with typical British understatement, “generate quite a debate.”

He points out that US businesses and consumers, especially in heavily populated coastal states, benefit from international insurance, and that the Neal Bill would bring in “relatively minor” extra tax revenue. A recent report by Citigroup Global Markets estimates that the US government losses less than $200m in annual taxes due to the current Bermuda-related tax code.


Within Bermuda, the most important regulatory change currently underway is the move toward Solvency II Equivalence (see pages 11-13, 18). Few says the Bermuda Monetary Authority “is doing a good job” on this.

Hoshina points to another issue: the six year time limit on Bermuda work permits. “We make every effort to hire Bermudians and develop their knowledge of our business,” he says. “But at the same time, the local talent pool is finite. This means that, in many cases, when we are unable to hire Bermudians, we have little choice but to look for people outside of Bermuda. With that in mind, the six year limit is definitely a hindrance.”

Some companies – including giants ACE and XL - have shed staff in Bermuda recently. In XL’s case this seems to be part of a general drive to reduce costs and exit superfluous lines; in ACE’s case the reduction has been less dramatic. However, does the Bermuda market suffer from impermanence?

“ACE, Flagstone Re and Hiscox might have moved certain business areas elsewhere, but their insurance and reinsurance operations are still located in Bermuda,” says Hoshina. “For that reason, it is too early to describe the Bermuda market as suffering from impermanence.”

Few says: “Companies are always going to do what is best for policyholders, shareholders and staff. So long as there remains a business case with acceptable regulatory, fiscal and legislative policies in place, I think Bermuda will remain a vibrant insurance/reinsurance centre.”

Few lives in Bermuda but visits Aspen’s other reinsurance centres throughout the year. He is on the Aspen Group executive committee, which means he visits London regularly.

Hoshina spends just over a third of his time outside Bermuda. As well as being president of Tokio Millennium Re, he is a board member of other companies within the Tokio Marine Group including Kiln Limited, works for the parent company and is part of an effort to globalise the whole group.

Executives in other financial industries emphasise this international aspect. “Many of our clients’ needs are international,” says Karla Maloof, global relationship manager in global banking and markets, Bank of Bermuda. She feels that the Bank of Bermuda’s position as part of HSBC helps. Bank of Bermuda set up a dedicated insurance banking team in 2006.

According to Hoshina, many people wrongly assume that just because it is a small island, business doesn’t keep up with the same pace of places like New York City or London. “But the international business sector in Bermuda draws in many ambitious and driven people from places like those – so collectively, business can be just as fast-paced here as it is in bigger cities,” he says.

Despite the challenges, Bermuda will build on its successful history as a reinsurance market if it can maintain its low taxation, secure international competitiveness while avoiding over-regulation, and continue to attract talent with an ability to work hard and develop new ideas. As Shakespeare wrote in The Tempest, a play about an imaginary island some say he based on what he had heard about Bermuda: “what’s past is prologue; what to come, in yours and my discharge.”

David Sandham is Editor of Global Reinsurance