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Bermuda, however, has several advan-
tages going for it, he noted, including its
reputation. “Location isn’t an issue,” he
said, “because a presence in Bermuda is not
required to do the cat bonds.”
But whatever the out-
come, according to Mr.
Dubinsky, “I think it’s a
new direction and they
should be applauded for
trying to do this. This is
a very favorable develop-
ment.”
Howard Stecker, senior
vice president with Smart
Business Advisory and Consulting in the
New York City office, said an interesting
point about the Bermuda market is that
“Bermuda is the same plane ride as flying
to Chicago. As far as ease of access, it’s no
wonder Bermuda has been so successful.”
He added that Bermuda has been “the
place where companies have gone for
regulatory relief.”
Although some see Bermuda as a tax
haven, he said, “the bigger drivers might
be in getting to a less stringent regulatory
environment, because their reserving prac-
tices are different—things like the amount
of capital [required].”
Mr. Stecker explained there used to be
a rule of thumb in the United States—
property-casualty companies had to have
a three-to-one ratio on reserves-to-capital,
but “in Bermuda, it’s 10-to-one.”
He added that there has been tightening
of this in Bermuda, with more structuring
of capital. But overall, he said, “the fran-
chise they’ve built is not around taxes—it
was more about regulatory structure. It’s
not by happenstance that seven new com-
panies were formed in Bermuda, with $1
billion in capital, right after Sept. 11, 2001.
It was principally because the regulatory
structure to set up those companies was a
better economic value, if you will.”
While most of those companies have
since formed U.S. arms, “still, the main
part of the business is in Bermuda,” he
noted. “And there have been some in-
cat bonds than what has been used.”
He added that while there have been
a few cat bonds done via Bermuda in the
past, the number has been relatively small.
A ne w class of insurers was devel-
oped, he said, and “all the different play-
ers in the cat bond/sidecar area” were
asked to come up with implementation
regulations. Mr. Dubinsky noted that an
advisory committee meets periodically.
The bottom line, he said, is “they’re
taking steps in the right direction. With
the cat-bond deals, sometimes we use
captives and sometimes we don’t.”
He said these deals involve unli-
censed entities, “in the sense that they
are simply entering into the derivatives,
not into reinsurance or insurance trans-
actions,” adding that most of the deals
use captives as the bond’s reinsurer.
At this point, he said, the regulation is
being finalized with the Bermuda Mon-
etary Authority “taking a very deliberate
and prudent approach. I think they will
have something in the next few months,
and then it’s up to the market to deter-
mine whether or not all this work leads
to them getting more business.”
At this point, he added, “it’s
unclear, because there is interest in
many jurisdictions.”
Whether Bermuda will succeed with
the new regulations is uncertain, he
said. “We’ve been down this path with
various jurisdictions in the [European
Union] and Singapore,” he said, “To
my knowledge, Singapore has had no
business whatsoever.”
He added that while he believes Ber-
muda is better positioned to become a
domicile of choice on such deals, what will
happen “remains to be seen.”
One reason, he said, is that while the
captive managers in Bermuda “are very
good, the captive managers in Cayman are
very good as well. They’re very experienced
in cat-bond transactions, and the fees of
service providers in Cayman are generally
lower than Bermuda.”
property-casuaty.com January12,2009|NationalUnderwriterProperty&Casuaty| 13 12|NationalUnderwriterProperty&Casuaty|January12,2009 property-casuaty.com
Bermuda Putting Out The Welcome Mat For New Captives Despite Tough Market
Captive king adapts to keep up with new domiciles, offset crisis in financial system
■ BERMUDA
versions where U.S. companies became
Bermuda companies, so they’re not subject
to tax.”
The other side of the issue is that “if you
do business in the U.S., you’ll wind up pay-
ing tax. So the tax benefits are there if you
structure certain transactions right.”
Mr. Stecker said that changes in U.S. law
would certainly impact Bermuda business-
es if they were to lose their tax benefits,
“but there are companies that wouldn’t be
affected at all”—including captives.
He said there also are a number of
producers with captives set up in Bermuda
because of the regulatory ease of doing
business.
“Then you have large corporations that as part of their risk management practice have a captive,”
he added. “A lot of their coverage is
carried through a captive, and they
tap in for stop-loss and other types
of coverages on the back side.”
He surmised that because of the
wide range of companies in Bermuda, “I don’t think a change in legislation on taxes would be a death knell to
that industry.”
Over the years, he observed, there have
Most Bermuda Firms Remain
Resilient Despite Financial Crisis
■ REGULATORS VIEW
While Bermuda companies are feeling
theeffectsoftheeconomiccrisis,they
have survived other disasters, including
major hurricanes, and will come through
this one as well, a Bermuda official contends.
Indeed, in regard to the financial crisis,
Bermuda companies “have fared reasonably well,” according to Shelby Weldon,
director of Insurance,
Licensing and Authorizations with the
Bermuda Monetary
Authority.
“Quite obviously,
we have been impact-
ed,” he said. “We had
anumberofcompa-
nies in one sector of
our group—the financial guaranty reinsur-
ers—significantly challenged through the
subprime crisis, but a lot of that was really
driven by the fact that the direct insurers in
the U.S. were challenged and their business
gets reinsured into Bermuda.”
He added that Bermuda has “worked
very closely with those companies as well
as onshore regulators to find solutions to
some of those challenges, and have been
quite successful with that.”
At present, he said, some of the compa-
nies are completely out from under their
continued on page 4
continued on page 4
The Bermuda Monetary Authority
is taking a very deliberate and prudent
approach. I think they will have something in
the next few months, and then it’s up to the
market to determine whether or not all this
work leads to them getting more business.”
W am Dubnsky, Drector Swss Re
Indeed, Bermuda has been actively
working to attract catastrophe-related cap-
tive formations, according to William Du-
binsky, a director with Swiss Re in New
York. One such initiative, he noted, is new
regulations for special-purpose vehicles.
Mr. Dubinsky—who is part of an ad-
visory group working with the Bermuda
Monetary Authority on SPVs—said a num-
ber of these types of captives have been
launched in other domiciles, including the
Cayman Islands.
“In the cat-bond area, a lot of sidecar
deals have been based in Bermuda,” Mr.
Dubinsky pointed out. “Over the summer,
Bermuda changed its legislation that created a new class of insurers. From a statutory perspective, that might be better for
OVER THE SUMMER, Bermuda
invited more captive players by
creating a new class of insurers
that might be a better vehicle for
catastrophe bonds.
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