Bermuda might be the natural domicile for start-up reinsurers, but does it have the space? asks David Ezekiel.
Bermuda has seen a huge influx of new capital in the aftermath of Hurricane Katrina. The new capital comes from four distinct sources – insurers in the UK and US establishing subsidiaries, new companies being supported by hedge fund money, well known industry names bringing new capital to the market, and established Bermuda companies setting up subsidiaries and special purpose companies. The total influx of new capital into Bermuda in what will be a 30 to 60 day period is unprecedented with some 12 announced names with an aggregate of between $8bn and $9bn and ten existing companies raising another $5.5bn.
Bermuda is a natural domicile for these companies with its high level, risk-based regulatory regime and advantageous operational and tax structure. Add to this an established company and broker market and the attraction is obvious. Bermuda's approval and incorporation process is tailor-made for a fast start with its focus on the quality of the ownership and the people running the company.
The Bermuda Monetary Authority and the Insurers Admissions Committee, together with the Immigration Department, which has been turning around temporary work permits (these are issued for three months ahead of a full application) within eight to ten days, have all played their part in facilitating the new entrants. The new wave will, however, put an enormous strain on a market already suffering from tight labour, limited office space and residential constraints.
Office space is at a premium and even though there are some major buildings under construction, they won't be completed soon enough for the current crop. As a result there is a scramble for both temporary and permanent office space. Residential accommodation, which was showing a little softness on the rental side prior to Katrina, has now once again become scarce and expensive for both renters and buyers.
There is also huge competition for local staff as the new companies seek to hire locals and provide the jobs promised in their business plans. This has led to some poaching from the existing companies, but after an initial flurry things seem to have settled down.
What next? The Bermuda motto of “Quo Fata Ferunt” meaning “wherever the fates may lead us” is entirely appropriate in the current situation.
From the company viewpoint it is a question of getting the pricing right, putting a lot of business on the books for 1 January and then hoping that the frequency and severity experienced in the 2005 hurricane season does not signal any sort of long-term trend.
From a Bermuda infrastructure perspective the issues are perhaps even more complex. The whole issue of sustainable development is becoming the topic of the day, and even a number of supporters of this “economic miracle” are expressing concerns about the impact of this sector on the general quality of life in Bermuda, particularly as it relates to housing and equal opportunities for Bermudians within the industry. This will be the major challenge facing the government and the industry itself, and how it is handled could very well define the social and economic future of the island for generations to come.