Steven Ader asks if Bermuda can survive in the face of fierce competition.
Bermuda has been the undisputed insurer capital for startups and re-domestications in the past decade. However, other regions have learned from Bermuda’s success story, and the signs are that Bermuda won’t dominate the industry over the next decade. Bermuda will remain important, but insurers are also beating a path to Dublin, Dubai, Zurich, and Luxembourg in a bid to be closer to their customers.
Although the successful emergence of Bermuda as a preferred location for insurance companies is evident, there are material challenges facing the Bermuda market. These challenges include the perceived regulatory shortfalls relative to well-established regulators and the sustainability of the tax advantage. Reputation risk resulting from a diminished regulatory focus on market conduct and the operating constraints of conducting business in a relatively isolated island location are also factors in this shifting dynamic.
In its 2005 assessment of the supervision and regulation of the financial sector, the International Monetary Fund (IMF) raised concerns regarding Bermuda regulation. Using the benchmark of the International Association of Insurance Supervisors’ core principles, the IMF concluded that Bermuda failed to observe approximately half of the principles.
In response to the report, the BMA has been bolstering its practices (for example, a risk-based capital adequacy requirement is being introduced). Although Bermuda has proactively addressed these concerns for which the IMF will address in an update report, an actual or perceived shortfall in regulation will adversely impact Bermuda’s competitiveness as a global insurance center.
“Bermuda will remain important, but insurers are also beating a path to Dublin, Dubai, Zurich, and Luxembourg
Bermuda’s insurance industry was born from the absence of premium and income taxes that in combination with a stable legal jurisdiction fuelled the development of critical mass in talent, infrastructure, and market acceptance. However, the sustainability of this advantage is under attack, both by competing jurisdictions as well as tax jurisdictions outside of Bermuda.
Well-established insurance domiciles, particularly in Europe, have significantly enhanced their competitiveness through competitive tax rates and the advent of “European Passporting.” The growth of these domiciles highlight that market access, infrastructure, and talent are also important in choosing locations.
Steven Ader, director at Standard & Poor’s.