Reports: Europe’s Threat to Our Re/Insurance Sector

November 9, 2010

MapEuropeBermuda’s preeminence as the off-shore domicile of choice among global insurers and reinsurers is coming under increasing threat from Switzerland because of mounting uncertainty surrounding the island’s long-term tax status with the US and an inadequate regulatory infrastructure, according to international news reports.

Both Reuter and Business Insurance have recently run long analyses questioning whether Bermuda is losing its lustre as a key re/insurance centre.

“Tax might be zero in Bermuda but operating costs are high and people can get island fever living there,” Chris Waterman, an analyst at ratings agency Fitch, told Reuter. “A place like Zurich also has tax advantages, great communications as it’s placed at the centre of Europe, and a highly skilled workforce.”

Lingering fears that Bermuda is viewed as a tax haven by the US — despite a specific denial by US Attorney General Eric Holder during his recent visit to the island — have helped to spark a slow but steady exodus of insurers and reinsurers to Switzerland and other European jurisdictions. Bermuda-based Allied World last week announced plans to move its holding company to Switzerland. In May London-listed Amlin said it would be relocating its Bermuda-based reinsurance unit to Switzerland while industry giant Ace, headquartered in Bermuda, redomiciled to Zurich two years ago. Global reinsurance power player the XL Group has redomiciled to Ireland and Flagstone Re switched to Luxembourg from Bermuda earlier this year.

In addition to the redomestications, a number of Bermuda companies have also launched European operations in Switzerland in recent years including Endurance Specialty Insurance Ltd., Montpelier Re Holdings Ltd. and Arch Reinsurance Ltd.

“Some companies have cited the need for certainty in tax matters as reasons for moving from Bermuda to Switzerland,” reported Reuter. “Flagstone and ACE said tax treaties with the United States in their new domiciles were the primary reason they left Bermuda, which has no such treaty.”

Additionally, strict new European Union rules governing insurers and reinsurers coming into force in 2013 have prompted locally-based companies to opt for Switzerland. Although not an EU member, Switzerland has a more stringent regulatory infrastructure than Bermuda, one likely to be officially recognised as harmonious with the EU’s solvency regulations.

While the Bermuda Monetary Authority is currently working to upgrade the island’s relatively light regulatory environment to make it more congruent with the EU’s upcoming Solvency II regulations, Switzerland’s current advantage over the island is drawing business away from the island .

“The rise of domiciles such as Dublin and Zurich pose a credible threat in becoming the destination of choice for reinsurers,” Chris Klein, head of reinsurance markets at reinsurance broker Guy Carpenter, told Reuter.

However, while the recent moves to Europe suggest Bermuda’s allure as an insurance and reinsurance centre may be fading, all of the departing companies have maintained an ongoing operational presence on the island.

“I think a gradual erosion is probably true, but I don’t think it’s a big bang,” said Sebastian Kafetz, an insurance specialist at Lloyds Banking Group’s corporate banking division, told Reuter. “You’re seeing people move their capital to Europe, but as a market place Bermuda has still very much got the cluster effect, people are still growing their operations there.”

Following are some facts on Bermuda’s re/insurance operations:

  • Bermuda’s reinsurers paid nearly 30 percent of the insured losses from 2005 Hurricanes Katrina, Rita and Wilma;
  • Bermuda’s reinsurers paid $22 billion to rebuild the US Gulf and Florida coasts from the damaging 2004 and 2005 hurricane seasons;
  • Bermuda’s reinsurers provide an estimated 40 percent of the US property catastrophe reinsurance capacity, and write an estimated 40 percent of Europe’s property catastrophe reinsurance market;
  • They write 16 percent of aggregate global reinsurance premiums;
  • Bermuda hosts 16 of the world’s top 35 reinsurers.

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Comments (6)

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  1. Peter Barrett says:

    I wish the events detailed in this Article were alarmist and nothing but poor/one-sided journalism. Unfortunately, this is the new reality being faced by Bermuda. And we have ourselves to blame. The Swiss have not waived some magic wand, or used cutting edge technology to side-line Bermuda. What have the Swiss done? They have done what Bermuda used to do in the past. The Swiss are listening to the concerns of the international business community and they are meeting their needs.

    • Bermyman says:

      The current government is not hospitable to International business. One of the biggest concerns is the poor education standards and social issues in Bermuda. If people are not well brought up and educated, how can we expect them to work in an environment in which employees are. The current government expects these companies to hire under qualified Bermudians over experienced and talented expats. Bottom line in this business is you need the talent to sustain the business. No more 6 year term limits, no more payroll tax. These companies are a pillar of our economy, Bermudians will loose jobs in their respective fields as a knock on effect, every sector hurts. We should want these expat workers on the Island, we should cherish that they have chosen to live here and make them feel welcome. Instead the Government and the majority of her voters act in aggression and spite towards them. Wake up Bermuda, this Island and your way of life is not as secure as you think it is. We could end up as a poor country, with empty buildings and crime every where. Anyone with money will move off the Island and this place will be no different from Haiti in 30 years if something isn’t done. It is more serious than we think, and the PLP Government are not smart enough and not public serving enough to correct it. It can all go terribly wrong, be very afraid.

  2. Aceb says:

    Bermyman, well said. It is what is not mentioned in the article that is concerning. The current govt needs start welcoming expats (and anyone for that matter) instead of treating them as 2nd class citizens. Sadly, I know many who cant wait to leave because of the disrespect they have received. They wont say it, of course. Can the Govt change our poor international image? Well, if they cant unite the country, then I doubt they’ll be able to change our poor image.

  3. S Brown says:

    Your statement “The current government expects these companies to hire under qualified Bermudians over experienced and talented expats ” is absolute rubbish.
    As someone who once sat on the board that reviews work permits that is so far from the truth. Never has a company that advertised a job in which a specific qualification that was required was forced to hire a Bermudian who did not have the qualification and was under experienced over an expat who did. Hence, the reason why the Government has told Bermudians to obtain qualifications.
    CEOs, CFOs, COO, AVPs, VP, Underwriters, and other key positions in a company have their permits renewed without issues. Stop spreading falsehood.
    The expats who should be and most likely are concered with term limits are the ones without qualifications who are doing jobs that educated Bermudians are capable of doing.
    The instances in which it appeared a company was forced to hire a Bermudian without experience and/or a qualification when they required one in their advertisement occurs when an expat who is renewing their permit was hired without those qualifications/experience. While in the post, they obtained the qualifications/experience and now all of a sudden when their job has to be advertised the qualifications/experience is required. How is this fair to a Bermudian who wants the opportunity and get a foot in the door? In which other country this would be tolerated?
    Contrary to what you believe, there are several educated Bermudians out there who just need a chance to prove themselves, thea and others would make you believe most are dropping out of school and shooting each other;then again negativity sells papers right? How about the GCSE students at Berkeley who had higher pass rates than their UK and private school counterparts?
    If stockholders of IB decide that there is a jurisidiction that is more profitable, in the drop of a dime IB companies would leave, no matter the extent a government would try to appease them. Simple. There is a fine line between appease internation business and pimping your country to them.
    Bermuda is like any other country when it come to foreigners, some of the population welcome them, some do not. Its human nature for some people to be xenophobic (Im not saying it is right). Look at the shift in the UK’s Governments policy towards immigrants, the US etc.

    • Bermyman says:

      Sounds like they should have no concerns with a 6-month term then. Funny that they would go to so much trouble to retain unqualified staff, bring them to Bermuda and try to keep them here longer than 6 years. I wonder why?? Funny thing is that I was recently at a panel discussion with many high profile business leaders participating. They all agreed that the government could be more hospitable and 6 year term limits was of grave concern. But I wonder why they are so concerned, according to your justifications above, everything is just fine and dandy. BUT WHY ARE THESE COMPANIES LOOKING TO LEAVE AND WHY ARE THEY LEAVING? It is not to do entirely with profitability; it is about educated labor pools, tax (payroll) and the Solvency 2. Do not deflect the real issues here and that the Governments agressive stances towards International business, No one would say they are or have been hospitable or even appeasing. Yes I agree that there are plenty of educated Bermudians and a lot of them are working in good jobs in the sector. But the ones that are robbing and shooting people are not helping the situation. I know many execs that have now been robbed in Bermuda, they don’t think it is safe any longer and they want to leave with their families. It is the business leaders and the Bermuda monetary authority who are working to try and keep the Bermuda market alive, not the government.

  4. N Comrie says:

    Can I ask where you got the statistics at the end of the piece from? They make very interesting reading.