Bermuda: Sun, sand, sea, beautiful beaches and beautiful, friendly people. Is this really all there is? Some would have you believe that this is the case, plus maybe a little tax arbitrage.
Well, there is so much more. Don't get me wrong; there is an abundance of sun, sand, sea, etc. There is also the business environment for significant legitimate tax arbitrage, but these are not the reasons why Bermuda is the world renowned international business jurisdiction that it is.
Recently, the island has been specifically targeted in relation to a proposed piece of US legislation referred to as House Resolution 4192. Introduced in the US Congress by Representatives Nancy Johnson and Richard Neal, this protectionist bill is clearly an attempt by some US based insurance companies to bolster their own competitive position to the selective prejudicial detriment of another country.
The $7 billion figure that has been touted by supporters of this bill as the potential loss to the US Treasury is farcical and is erroneously based on the premise that the entire US property/casualty insurance industry relocates to Bermuda. Figures indicate that last year the US property/casualty industry paid on aggregate approximately $5.2 billion in taxes.
The targeting of Bermuda by the sponsors of HR 4192 is clearly discriminatory and focused on Bermuda because many of the companies located there have proven to be particularly successful international competitors.
Bermuda based insurance companies have for decades been providing an extremely important and valuable service to a wide variety of businesses world-wide and, particularly, in the United States. They have provided the capacity that was once clamoured for and are insuring or reinsuring risks that other insurers have not historically been willing to cover. The advent and success of some of Bermuda's insurance carriers arose as a direct result of the failure of some advocates of HR 4192 to meet the capacity needs of the world insurance market in the mid-80s.
Insurance and, in fact, companies across a wide range of industries, have domiciled in Bermuda for many reasons. Bermuda's unified regulatory approach is often regarded as more business friendly than the different state regulatory approaches in the US. I was talking to Jeremy Bennet, the architect behind the formation of Boston Re ~ a captive vehicle for Credit Suisse First Boston ~ at their launch in Bermuda on the evening of Thursday, 11 May. When asked “why Bermuda?” his response was particularly direct. He said they had discussed many jurisdictions, including Singapore, Guernsey, Jersey and the Isle of Man. They chose Bermuda because of the regulation. Reputation was extremely important to them, and they needed to be in a proven, blue chip jurisdiction, where there would never be eyebrows raised.
Bermuda, as one of the top three insurance centres in the world, has flourished because of an abundance of underwriting expertise, experience, focus and discipline, as well as a well earned reputation as being the world's insurance laboratory. The insurance industry was well established in Bermuda long before the 1986 Tax Reform Act was adopted in the US.
Not only could this bill jeopardise the ability of the insurance industry as a whole to meet the capacity and pricing needs of the domestic market, this proposed legislation runs contrary to internationally accepted principles of tax law. HR 4192 violates the basic tax law principle that one country does not seek to tax the non-domestic income of a company that is based outside that country. The insurance companies based in Bermuda pay all applicable taxes in all the jurisdictions in which they do business.
Irrespective of the cynic's obsession with tax, the real reasons for a Bermuda incorporation can be clearly identified. The government and business communities in Bermuda have developed an environment that is extremely conducive to insurance and international business. Premier Jennifer Smith, at a recent breakfast coinciding with the RIMS conference in San Francisco, described the relationship between the public and private sectors in this way:
“Bermuda is the international business centre, where intellectual capital combines with a sound infrastructure and prime geographic location. We have created a mature and growing financial services sector, with access to and from global markets. We have achieved this by building a solid relationship between the public and private sectors. You might say our relationship, built over many years, is like a marriage.”
Over 30 years ago, the Bermuda Monetary Authority (BMA) established an international standard for effective regulatory oversight over Bermuda's financial sector. The BMA's accountable, but separate relationship with government has created an effective framework for disciplined cooperation between the public and private sector and has become a benchmark for other jurisdictions.
The reputation Bermuda has garnished over the years as a clean and respectable jurisdiction is a matter of extreme pride for the island and is staunchly maintained. There is no evidence of any kind of money laundering operations in Bermuda. There is specific legislation in place to avoid secrecy should the circumstances dictate that access to transactions is necessary.
Bermuda has a highly skilled and well educated workforce, including representatives of the top international accountancy, legal and professional management firms. Bermuda offers intellectual capital, economic and political stability, e-commerce technology, accessibility and the highest international business standards.
These factors combine to make Bermuda a premier place to do business. This attracts companies. These companies are high-profile, legitimate and market leaders including three- quarters of the Fortune 100.
Did I mention the natural beauty of the island?