Bermuda's captive industry has grown at a record pace over the past few years, despite the continuing depression of insurance pricing. Nicholas Dove explains why.
This new slogan that will be used in advertising the international insurance business of the island - Bermuda, the world's insurance laboratory - is no idle boast. In recent months the traditional insurance world has seen Bermuda companies' voracious appetite for acquisition add such names as CIGNA, Winterthur, NACRe, Corifrance, SAFR and numerous Lloyd's agencies, the latter resulting in Bermuda providing the largest portion of corporate capital to Lloyd's.The attraction for the reinsurance companies to set up in Bermuda did not happen by chance. It grew from the established captive industry which provided the regulatory climate and experienced infrastructure to service their needs. Once established they did not stand still, but continued to provide innovative solutions to the needs of the risk managers and the insurance industry.
The captive industry has not been idle during this time but has grown at a record pace over the past few years, despite the continuing depression of insurance pricing. Why? Because the promoters and managers of captives have been proselytising in parts of the world that hitherto were unaware of the self-insurance movement or were subjected to restrictive local regulation which prevented their participation. These Berlin walls of regulation have started to crumble and as we see them fall in such places as Japan, Central America, South America and India, Bermuda is positioned to bring its experience to bear to provide the captive domicile of choice.
Captive owners have been looking for new ways to use their subsidiaries to provide more effective and efficient insurance covers and to expand their profitability by providing coverage for third parties. This is no indication that there is a return to the foolhardy underwriting that took place in the 1980s by a few unfortunate and well publicised captives, but development in a controlled manner of closely related businesses where the risk is recognised and understood.
The rent-a-captive movement, or non-owned captive as some prefer, was another Bermuda innovation which grows at a tremendous pace and has been copied in competing jurisdictions. Bermuda is home to 60% of the identifiable rent-a-captive facilities in the world today, and even a conservative estimate would put the number of programmes within these facilities well in excess of 1,000. The concept of protected cell companies grew out of the fertile rent-a-captive ground and is now the subject of specific legislation in some domiciles. Bermuda will not be slow to amend its legislation to provide an easier route to formation than the current private act of parliament route.
I have the privilege to currently hold the position of president of the Bermuda Insurance Managers Association (BIMA). It is our responsibility to represent the managers and more importantly our clients, in the partnership between the government of Bermuda and the insurance industry in the regulation, promotion and innovation of international insurance business. Bermuda has and continues to be, a hot-bed of fertile minds searching for new solutions to new problems that arise in today's environment. It truly is the world's insurance laboratory.
Nicholas Dove is president of the Bermuda Insurance Managers Association (BIMA) and president of Skandia International Risk Management Ltd.