Bermuda was settled in 1609 and is the oldest self-governing colony in the British Commonwealth. The Island measures 23 square miles, is home to 65,000 residents and lies approximately 660 miles east of North Carolina.
International Business and tourism are the main aspects of the Island’s economy with the insurance and reinsurance industry playing a dominant role.
The Bermuda insurance and reinsurance market, recognized today as being the third largest in the world after New York and London, had its origins back in the 1960s and 1970s with the development of the captive insurance industry. Growth continued with the excess liability insurance market in the 1980s and the large capital influx of the early 1990s with the creation of the catastrophe reinsurance companies. The first decade of the new century has seen another wave of substantial capital to the Bermuda market in response to industry needs, initially after the terrorist attacks of September 11, 2001, and then following Hurricane Ivan in 2004 and Hurricanes Katrina, Rita and Wilma in 2005.
It is the financial strength of the market, key developments in innovative risk financing and strong flexible regulation that have made Bermuda “The World’s Risk Capital”.
Captive Insurance in Bermuda
By being the birthplace of captive insurance companies, and despite competition from other offshore and onshore domiciles, Bermuda has maintained its position as the worlds leading captive domicile. The Bermuda Monetary Authority(“BMA”), and specifically the Supervisor of Insurance, are responsible for regulation of the insurance industry under the auspices of The Insurance Act 1978 and various amendments (“The Act”). The Act is designed to provide an early warning about insurance companies that have potential solvency problems and to give the BMA statutory powers to restrict operations or force closure.
As Bermuda’s market developed over the decades and to ensure that all insurance and reinsurance companies domiciled in Bermuda have a level of regulation that is appropriate to their underlying business, a class system of regulation was introduced in 1995 and further amended in 2008.
Today, all Bermuda insurance and reinsurance companies are registered under one of the following classes for general business. The level of regulatory attention varies according to the class with Class 1 having the lowest level of regulation:
Class 1 - Single parent writing related risks only
Class 2 - Multi-owner captives, agency captives and single parent captives writing not more than 20% unrelated risks
Class 3 – Rent–a-captive facilities, segregated account companies, companies writing connected business and companies writing up to 50% unrelated risks
Class 3A – Companies writing in excess of 50% unrelated risks and less than $50 million in gross premium
Class 3B - Companies writing in excess of 50% unrelated risks and more than $50 million in gross premium
Class 4 – Companies with a statutory capital and surplus of at least $100 million that write excess liability or property catastrophe reinsurance businesses.
All insurance companies are required to maintain minimum solvency requirements: $120,000 for Class 1 companies, $250,000 for Class 2 companies, $1 million for Class 3, 3A and 3B companies and $100 million for Class 4 companies. Actual requirements depend on the volume of business being written and the level of loss reserves. Companies are also required to maintain “relevant assets” equal to at least 75% of “relevant liabilities”. While all insurance companies are required to appoint an independent auditor who will report on the statutory financial statements and return, the requirement to appoint a loss reserve specialist and filing requirements vary for each class.
In addition to general business, Bermuda regulations permit the formation of companies writing long-term business such as life, long-term health care and disability insurance and annuities. The minimum capital requirement is $250,000 and the company must maintain an actuarially determined Life Fund.
Companies may be licenced as composites – writing both general and long-term business and must meet the statutory minimums separately for each type.
Bermuda is currently home to approximately 1,000 of the world’s captives with parentage from all corners of the globe and ranging from Fortune 500 companies to family owned.
USA Risk Group currently manages 24 captives in Bermuda, with premium volume in excess of $800 million and capital and surplus in excess of approximately $806 million.
Why Choose Bermuda for Your Captive
- Political and economic stability – Bermuda’s political and economic structures are built on stable foundations. Bermudians enjoy one of the highest standards of living in the world.
- OECD – Bermuda has been white-listed by the Organization for Economic Cooperation and Development.
- Taxation – Bermuda has no taxation on profits, dividends or income, nor are there any capital gains or gift taxes. The only form of taxation imposed on insurance and reinsurance companies is annual registration and licensing fees.
- Regulation – There is an effective, yet flexible, regulatory environment.
- Currency – Foreign-owned companies are not subject to any form of currency or monetary control. Local currency is the Bermuda Dollar, which is pegged at par to the US Dollar, which itself circulates widely.
- Communication – Communication facilities to and from the island are excellent. Fiber optic and digital technology services are available, as are video conferencing and internet services.
- Professional services – In addition to Cedar Management, there are excellent professional services on the Island, including banks, audit and accounting firms and law firms.
- Insurance expertise – Bermuda offers a high caliber of insurance expertise and technical knowledge.
- An island paradise – Bermuda has the charm of a premier tourist resort that provides excellent hotels and restaurants, top class recreation and entertainment facilities and an attractive sub-tropical climate.
Thomas R. McMahon
Cedar Management Limited
25 Church Street
PO Box HM 824
Hamilton, HM 12
Toll Free: 877/483-1850 ex 2371