Europe grows; Bermuda slows

I’ve been gathering string for some time to do a post on the exodus of reinsurers from Bermuda and the Caribbean in favor of Europe. In an article about Zurich’s new popularity as an insurance headquarters, BusinessWeek said about everything I might have:

  • Solvency II will require European insurers to hold more capital (70% more by some estimates). But instead of getting investors’ capital directly, insurers can ‘rent’ capital from a reinsurer. S-II rules allow this.
  • So why would insurers leave Bermuda? Quoth Marc Beckers, of Aon Benfield: “The reinsurers are concerned that if they are in Bermuda and they have to calculate their capital under Solvency II schemes as well as under the local regulation it’s going to put them at a disadvantage and create a lot more costs.”
  • On top of that, the tax advantages Bermuda had dwindle. The Obama administration is clamping down on tax schemes. Bermuda has no tax treaty with the United States, a fact that used to help it, but now hurts.
  • Switzerland seems to be the popular choice. The Swiss federal corporate income tax rate is 8.5%, and different cantons (states) tack on between 3 and 16 points, putting the total tax bill between 11.8% and 24.2%. But cantons will cut a deal, lowering their rate to attract a business.

So quite a few companies are leaving Bermuda and the Caribbean. Caitlin is moving from Bermuda to Switzerland, an action that triggered the BusinessWeek article. Endurance Specialty Holdings and Amlin Group have already made the move. In all, the number of companies headquartered in Switzerland has doubled, to 31, since the EC endorsed Solvency II in 2006.

Other companies have moved to Europe. Ace moved to Ireland from Cayman Islands two years ago. XL did the same. Flagstone Re is moving from Bermuda to Luxembourg.

A link dump here, here, here, here, here, and here. Some of these links discuss insurance and financial services companies like Willis and Accenture, while others discuss manufacturers like Tyco, all of whom are jumping.

Bermuda is not sitting still. Solvency II allows non-EC countries to qualify as ‘equivalent’ jurisdictions if they can prove they have standards similar to what the Europeans are adopting. Bermuda regulators want to be first in line and recently created an advisory team to help it hop through the proper regulatory hoops.

Third-hand, I have heard that as Bermuda tightens its regulatory reins, it may be making itself less attractive to captive insurers. One gentleman told me he felt that these days Bermuda stacks up unfavorable to Vermont, a state that has been pushing hard to become a home to captives.

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