Offshore Insurance Jurisdictions Powering Ahead

by Jason Gorringe, Tax-News.com, London

27 November 2002

2002 has been a good year so far for those offshore jurisdictions specialising in insurance, with sharp increases in premium levels leading to a major influx of new capital and a rush of start-ups taking advantage of the improved condition.

Prominent among the countries to be experiencing significant increases in business are Ireland and Bermuda. Ireland in particular has seen rapid expansion of the market for captives (a captive insurance company is one set up by one or more multinational companies to manage risk in-house and to reinsure risk directly with the market, bypassing agents' commissions, insurers' profits, and taking advantage of tax benefits enjoyed by insurance companies).

Dublin's International Financial Services Centre, which offers existing companies a 10% corporation tax rate (new formations have to pay 12.5%) had already attracted 180 captives, but 50 new ones have been formed this year. Commercial insurance premium rates have increased by up to 50% this year, making it highly profitable for a company with good risk management structures to take over its own insurance business. Dublin, with an established insurance sector, has an advantage over other 'offshore' jurisdictions since Ireland's EU membership allows an Irish insurer to write business throughout the Union under the 'passporting' directive.

Still, Bermuda has also experienced boom conditions in its insurance sector lately, with more than a hundred new insurers setting up shop in 2001, and the influx is continuing in 2002. At least US$12bn in new capital is said to have been added to the already substantial Bermudian insurance sector in the last year, more than replacing the US$5bn lost in the immediate aftermath of 9/11 last year. The increase in available insurance capital has been particularly impressive when judged against bombed-out equity markets which have 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 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.

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