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Bermuda pursues captive insurance opportunities

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Bermuda pursues captive insurance opportunities

SOUTHAMPTON, Bermuda — Leaders in Bermuda's captive insurance industry see growth opportunities for the captive domicile, including its continued attraction as the domicile for special-purpose insurers while drawing captives from Latin American and even Far East parent companies.

“I think there are huge opportunities in the Far East,” said Everard T. Richards, Bermuda's minister of finance, during a roundtable discussion last week at the annual Bermuda Captive Conference. Bermuda has the potential to serve as a financial services bridge between the United States and China, as it does between the U.S. and Europe, Mr. Richards said.

From a captive point of view, “the Chinese are absolutely hungry for information,” said another roundtable participant, Stephen Catlin, chief executive and deputy chairman of Hamilton, Bermuda-based Catlin Group Ltd. “But it's different,” he said, noting that Chinese businesses often have different standards and priorities than those in the West.

“Yes, there are opportunities, but to realize those opportunities, we have to think completely differently than we do today,” Mr. Catlin said without elaborating.

Mr. Richards said Bermuda also is seeing interest from prospective Latin American captive parents, “and we think that has great potential.”

“Right now the sort of financial capital of Latin America is, I'm sad to say, Miami,” the finance minister said, adding he wishes it were Bermuda.

In another session discussing the evolving captive market, Stuart Hayes, vice president with American International Group Inc.'s global risk solutions unit in Hamilton, Bermuda, cited reports of 60 current Bermuda captives with Latin American parents. To date, Latin American companies have been very conservative in their use of captives and very attuned to the regulatory requirements in different domiciles, he said.

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On the roundtable, Craig Swan, managing director-supervision of the Bermuda Monetary Authority, cited the island's growing role as the domicile of choice for special-purpose insurers involved in insurance-linked security deals. Two years ago, 25% of those vehicles formed in Bermuda, Mr. Swan said, while 40% of those formations were in Bermuda last year and 65% of special-purpose insurers have formed there so far this year.

“What really has dominated new formations in Bermuda is the special-purpose insurers,” Shelby Weldon, director of insurance licensing and authorization at the Bermuda Monetary Authority, said during the evolving captive market session. “Bermuda has really shown an ability to be a leading player in that space.”

Mr. Swan said, “One of the attractive characteristics of the Bermuda market is there happens to be a synergy between insurance-linked securities and property/casualty or short-tail lines of business.”

As Bermuda looks to continue its captive domicile growth, it's been confronted by claims by various government officials elsewhere that the island is a tax haven or that it offers a looser regulatory environment than would be found elsewhere.

Mr. Richards said that during recent meetings in Europe, he was astonished “by the rise in temperature — particularly in London — about this tax haven theory.

“We provide an essential service for the risk management of the global economy,” the Bermuda finance minister said. “But we are living in a hostile environment at this moment.”

Another roundtable panelist, Bradley L. Kading, president of the Association of Bermuda Insurers & Reinsurers, said Bermuda's proponents can tell a story that counters the domicile's critics.

“Anti-money laundering, anti-terrorism — Bermuda's been leading the way on these laws for years,” Mr. Kading said.

“The need to go out there and market has grown exponentially over the past six months,” Mr. Catlin said. “There's a vindictiveness about this and a lack of knowledge, which is quite worrying.”

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Asked about suggestions that captives and other insurers are leaving Bermuda, Mr. Swan disputed the notion, saying the island's new 2013 registrations are up over the same period in 2012.

Always “companies come and companies go,” Mr. Swan said. “It depends on the age of a company, what it wants to do, its business model, its strategy.”

During the evolving captive market session, Daniel D. Towle, director of financial services in the Vermont Department of Economic Development, said while the opportunities for captive insurance are numerous, there also are threats.

Among other things, some U.S. state officials are trying to use the Nonadmitted and Reinsurance Reform Act of the Dodd-Frank Wall Street Reform and Consumer Protection Act to regulate and collect taxes from captives not domiciled in their states, Mr. Towle said.

“We have more and more government bodies looking at captives and at the ways they can be regulated differently,” he said.

The 2013 Bermuda Captive Conference drew about 650 attendees to the Fairmont Southampton Resort June 10-12. For information about the 2014 Bermuda Captive Conference, visit www.bermudacaptive.bm.