Captive-Powered Bermudian Insurance Sector Steams Ahead

by Mike Godfrey, Tax-News.com, New York

13 April 2004

The latest data from the Bermuda Monetary Authority shows that 17 new insurance ventures were set up during the first quarter of 2004, comparable with last year, although many fewer than in the boom year of 2002.

10 of the 17 new formations were captives, also mirroring last year, and conforming to a long-term trend that has seen Bermuda become and remain the world's favourite 'captive' destination.

Bermuda has experienced boom conditions in its insurance sector in recent years, with more than a hundred new insurers setting up shop in 2001, and nearly as many in 2002. At least US$12bn in new capital is said to have been added to the already substantial Bermudian insurance sector during 2002, more than replacing the US$5bn lost in the immediate aftermath of 9/11. The increase in available insurance capital has been particularly impressive when judged against bombed-out equity markets which at the time had almost dried up as a source of capital.

All told, Bermuda now houses more than 1,600 insurers, of which the great majority are captives, and rather putting Dublin in the shade despite its advantages. But the capital influx - as distinct from sheer volume of companies - is mostly accounted for by major international commercial insurers: Ace, XL, Everest Re and Partner Re, all Bermuda-based, are said to have raised more than $3bn between them, while start-ups brought $7bn to the island in 2001 alone.

Bermuda also remains the number one domicile for Segregated Account Companies, according to a survey conducted last year by the Bermuda Insurance Management Association. The results show that approximately 83 Segregated Account Companies or protected cell companies (which includes 6,234 cells within these cells) are domiciled in the jurisdiction, whilst all other domiciles are host to 126 protected cell companies combined.

Although Bermuda is a relative newcomer to this particular sector, industry representatives say that the jurisdiction has succeeded in attracting market players largely due to legislation enacted in November 2000, which has created the right environment for cell companies to thrive.

The world insurance market, which is always highly cyclical, may be poised for a downturn after several good years, but there is no sign of it in Bermuda at least.

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