DC: “Bermuda On the Potomac”
Efforts to transform Washington DC into “Bermuda On The Potomac” — an onshore domicile for leading American re/insurers — are gaining momentum.
The District of Columbia would become a domestic tax haven for insurers setting aside reserves to cope with natural catastrophes if newly proposed legislation in the US Congress becomes law.
A bill introduced by the district’s nonvoting delegate, Congresswoman Eleanor Holmes Norton, would designate the US capital as a special jurisdiction where reserves and related investments from insurers and reinsurers could be set aside free of federal taxes.
The bill targets a piece of reserves now held offshore in domiciles such as Bermuda, Representative Norton said.
A rough year in the United States for natural catastrophes makes the District of Columbia National Disaster Insurance Protection Act particularly timely, Rep. Norton said in a statement issued today [Oct. 11].
“Retaining funds here in the US would fuel both the local and US economies, would provide the protection of US laws for individuals and businesses with property and casualty insurance and would protect US taxpayers, who would otherwise likely have to pick up the tab if there were a failure in reserve fund availability,” she said.
Congress’ ultimate control of district affairs is usually a sore point for local officials. However, in this case, it could bring a new advantage, said Lawrence Mirel, a former commissioner of the district’s Department of Insurance, Securities & Banking who worked on the legislation.
The bill requires companies with reserves held in the district to maintain a physical office. The district government could also impose an excise fee — as non-US jurisdictions do.
“The best way to look at it is to look at what it did for Bermuda,” said Mirel, a lawyer with Wiley Rein LLP.
Proposals to limit the tax deductibility of reinsurance premiums paid by US-based, foreign-owned insurers to non-US-based affiliates have been a frequent issue in Congress.
While legislation to address what many see as a tax disparity that benefits non-US-owned companies died at the end of the last Congress, similar terms surfaced earlier this year in an Obama administration budget proposal.
The Norton measure is a welcome fresh take, said R.J. Lehmann, deputy director of the Heartland Institute’s Centre on Finance, Insurance, and Real Estate.
“While further investigation is warranted into how the DC catastrophe reserve accounts would interact with the tax code, with state and international regulation and with accounting rules, we think this approach offers great promise for fostering a property insurance system that is both affordable and risk-based,” Mr. Lehmann said.
While Rep. Norton is the ranking Democrat on the House Subcommittee on Economic Development, Public Buildings, and Emergency Management, she is a nonvoting member of the minority party. She introduced a similar and unsuccessful measure last year.
Given the prevalence of catastrophes in 2011, however, Mr. Mirel is optimistic the bill will attract Republican support. “We can’t do this with just her. We need to attract some other lawmakers,” he said.
Last year Washington DC’s chief financial officer Natwar Gandhi first proposed transforming the perpetually cash-strapped American capital into an on-shore business domicile — saying the city had the potential to become “Bermuda on the Potomac.”
“Natwar Gandhi [suggests bringing] in dollars from rich corporations, namely banks and insurance companies who currently park millions of dollars abroad in island tax havens,” reported “Washington Herald” columnist Herbert Jaffe. “Gandhi wants to change federal tax laws and make DC ‘Bermuda on the Potomac’.
“Sounds reasonable. ‘The financial centre of the country is in Washington now’, Gandhi tells me. ‘All the trading can be done in New York, but the decisions are made here’ …”
“So why not make the capital into an on-shore tax haven, asked Mr. Jaffe? Why not lure all of those Bermuda-based insurance companies and their millions back on-shore by turning the District of Columbia into a corporate-friendly zone?
“Having no vote in the House or the Senate, DC is at the mercy of our suburban neighbours,” he said by way of answering his own question. “Every time DC floats a tax haven idea, politicians from Maryland and Virginia see it as giving the central city a competitive advantage. ‘It’s an idea we have explored in the past’, council finance chair Jack Evans says. “Maybe it’s time to do it again. I’m all for it’.”
Wow. Bermuda Inc is toast if this goes thru! Time to think up another “economic pillar” for Bda.
Americans just don’t want to work in Bermuda anymore. More and more businesses are feeling this way. I’m worried for our brothers and sistaas who have no other place but Bermuda to go.
Man the life boats. If the insane crime rate in Bermuda, the horrible treatment IB gets and the inflated price of a loaf of bread doesn’t send IB packing, this lovely invitation to live in DC surely will! DC is an amazing city, great schools, great social life, on the water… friendly people… Good job Bermuda – we’ve made the choice very easy for IB to make if this bill goes through. Had we been more accommodating, maybe our palm trees and pink sand could have kept them here.
We are going to be living under blue tarps at the beach year round now. Welcome to 3rd world status!
Look up the crime stats for D.C…. I beleive it was once the Murder Capital of the USA. It may be in second place now.
And yet Bermuda was named the best destination in the Caribbean by an upscale tourist publication… LOL
I dare them try this. Then we’ll send their wiggers right back to them! We all know it was a back room deal that got them here, in ref to Bda being a Island tax haven. With us taking these guys Obama has left us alone, but for how long is the question????
I guess PLP is to blame for this as well
Yes?
I can’t think of another party that is anti-foreigner, anti-IB, etc..
Why is it when someone (PLP) is for ‘Bermudians’ and put ‘Bermudians’ first they are ‘anti-foreigner, anti-IB’? It’s like if you don’t support homosexuality, you are a ‘homophobe’. Business is Business and if I get a better deal some where else I shall go some where else. Not because the PLP didn’t kiss my a$$ or make me feel welcomed. I could care less who is in government and how they feel about me. I will make my money either way and when I am done I shall leave
Interesting choice of analogy for Bermuda.
I don’t think this DC thing is “the best deal”. It actually sounds like they are offering the same deal.
But I think it’s sure as hell going to be easier to do business over there than it is here (brought about mainly by policies enacted by the PLP). No @ss-kissing required, it just makes sense that you don’t bite the hand that feeds you!
I don’t have to worry about biting the hand that feeds me,I use chopsticks
Looks like its time for the government to stop scaring IB away. You may wish to welcome them versus the opposite. I would love to see a government response to this but sadly I know all we will hear is more of the same drivel and attacks on the OBA… Government is selling this island down the river by ignoring what matters.
-Noel
Yup, they keep running away…
The number of new insurance companies formed in Bermuda this year rose to 35 nine more than the same time in 2010.
Special Purpose Insurer Vecta I Ltd was set up by Aurigen Services Ltd on August 29, with the company’s registration being issued retroactively to correspond with the receipt of all the registration documentation and the certificate being issued at a later date upon the successful review of requested additional information.
Two Rock Insurance Management Ltd, a manager, was incorporated on September 19, bringing the total number of intermediaries to six.
Meanwhile BMC Insurance Company Ltd was formed by JLT Insurance Management (Bermuda) Ltd on September 30.
(source: todays RG in the Business section)
dont get too excited Johnny….they are most likely captive companies that bring few if any jobs to the island that are not already here….We would need class 4 insurers to employe people….from the 35 new take out how ever many left or were wound down…..you may be in minus figures….
Yes as per the below post, You need to understand the nature of the businesses… So tell me, how many Jobs were created from these? When you compare that versus how many jobs were lost, you will find you are in the negative. If I am wrong, provide stats to correct me and I will stand corrected….
-Noel
To Noel and Navin,
Im sure if the article read those companies were leaving the island Im sure you would be complaining about how Government is scaring away business.
Furthermore, I would think the main thing other than regulation policies that would entice Class 4 reinsurers would be the cost of doing business in Bermuda. In this economic climate, why spend large amounts of money on your staff in Bermuda when you can find a jurisdiction where it is cheaper to do business, i.e. housing allowance, wages etc? After all, shareholders are very much concerned with cost.
Before any of you talk about term limits, please name a company that has left Bermuda due to the term limit policy.
What they do, actually, as permits come up for renewal or expiry, they just move hte job away. AIG (Chartis), AWAC, ACE, XL, RenRe..want me to go on? BNTB, HSBC…
Sandgrownan,
I work for one of the companies that you mentioned, and can state with absolute certaintity that term limits were not a factor in moving or reloacting jobs to another country.
Yes, costs are a factor…a big factor. However, my company has had no problems with immigration on initial work permits, nor any problems with work permit renewals.
Most of the talk about companies leaving Bermuda or downsizing their Bermuda operation due to term limits is simply not true. Other factors are at play here, term limits are not a significant issue.
Let’s not forget that our economy ‘financial serviced’ based. The world is experiencing the worst financial crisis in decades. Big banks (for example Citibank) had to be bailed out, certain countries (i.e. Greece) are on the verge of bankruptcy. Thus, Bermuda would be and is adversely affected.
It is naive to dismiss the world economic climate and blame Bermuda’s troubles on the PLP regime.
Flikel I work at one of the companies as well and can tell you with absolute certainty that term limits do play a role as many people do not want the uncertainty of placing their future in the hands of whatever Minister is in charge at the moment. Burch was a perfect example of someone who shot his mouth off and people left. As far as the financial crisis we were the one place on earth that should have been immune as there Insurance community here has maintained profitablility during this environment albeit margins have been shrinking due to premium contraction and investment returns. The attitude of Brown and Company was the main driver of people away with his “Sven and Johnny comments” and Burch with his 10 year permits over his dead body comments…No matter how you spin it the blame goes back to the Government of the day for driving business away…The companies are still here but the influence of the Bermuda operations has been diminished and its the people we need here not the incorparation…..nice try though…next….
@ Johnny Guard. Are you aware Appleby and CD & P (the 2 largest law firms on the Island) have drastically reduced or closed down their Incorporations Divisions?
That is FACT and shows how few new companies are setting up in Bermuda.
Since you seem to be up to date with new companies, how many companies have closed? So what if 35 new companies set up if 80 close?
Let me get this straight; Bermuda is a tax haven and should be shut down by the US and OECD. But if America psses new legislation to set up the Bermuda of the Potomac, by definintion isnt America turning DC into a tax haven? What is good for the goose is not good for the gander, as the OECD Cartel is executing its plan to steal business from the offshore financial centres for their own dodgy jurisdictions (ireland, switzerland, delaware, vegas and now dc).
When is Bermuda Business going to wake up and expose these jokers by taking them to the WTO, as their interest is to dismantle offshore financial centers for no other purpose then to fatten their own pockets.
OECD is not God on Earth.
Maybe now, just maybe some of you will recant on your criticsim of the Washington DC Office and the amount of work the last guy did to keep and make some friends for Bermuda over there. Oh wait, all travel is bad. i keep forgetting.
Ummm I do not think this is good for Bermuda. So what is the people at the DC office doing about this threat and how are the friends made you speak of helping us in this situation? Just a question, need to see where your getting the information from do you have a crystal ball?
LOL
Actually what happened was the people in DC met the representatives from your government and thought if these fools can do it anyone can ….please the DC office is a sham and the last guy went alot because Howard is there and he wanted an excuse to go back and forth…..
Isn’t the Heartland Foundation, quoted above, also an advisor to our very own Premier? Isn’t it funded by the insurance industry, or at least partially? Odd then, that they should be promoting such direct competition to Bermuda, but then what do I know….