Bermuda knows its future rests with the USA as much as the UK
Queen Elizabeth II’s recent visit to Bermuda was 56 years to the day after her first trip there, just months after her coronation in 1953. Three years later, in 1956, David Graham, a British lawyer, wrote a letter to The Times in which he pointed out that ships on the Bermuda Register were effectively British, yet their owners paid “no taxation at all”. That letter led to the creation of the offshore industry in Bermuda.
Today, Bermuda’s main business is as an offshore insurance centre, and it remains officially a British overseas territory. Yet last summer Bermuda failed to consult London about an agreement with the USA to resettle some Guantánamo Bay detainees. Bermuda’s acceptance of four Chinese Muslims, who were cleared of all wrongdoing but had spent seven years at Guantánamo after being captured in Afghanistan, sparked a transatlantic row and threatened to derail the royal visit.
In agreeing to take the four men, Bermuda may have been trying to curry favour with the USA, for Bermuda’s fate is now closely intertwined with those of four other gentlemen – all of them American. The first two are Congressman Richard Neal and Senator Carl Levin, sponsors of different bills that could profoundly affect the future of offshore finance. The third is Timothy Geithner, the US Secretary of the Treasury, who has voiced support for Levin's approach. Last but not least is President Barack Obama, who was a co-sponsor of Levin's Bill when he was a senator.
It should be remembered that the Neal Bill would affect all jurisdictions, not just Bermuda. And Levin's Stop Tax Haven Abuse Bill may not now be passed. A successor Bill has been introduced that is softer, and perhaps more likely to be enacted. Observers of the Obama administration feel that the pace of regulatory change may have slackened under the pressure of weightier issues, such as healthcare reform.
Either way, it is clear that the economic fate of Bermuda no longer lies solely in the hands of London, but also in those of Washington, DC.
On a broader note, we make our own forecasts for the industry as a whole on pages 12-16 of this issue. We cover rates, mergers and other business issues that you might expect; but we also felt it important to discuss regulation in some depth. It is unfortunate that this topic currently looms so large when considering the future of (re)insurance.