Newsletter Sign-up

Ewart Brown, Bermuda's newest premier, elected last year to succeed Alexander Scott and lead the governing Progressive Labor Party, is a man on a mission.

Brown intends to make changes in the way the insurance sector does business. Though hamstrung by arrangements made by his predecessors as far as the big insurers and reinsurers are concerned, he has in mind new labor policies he says will make life easier for the captive sector and its support industries.

Brown acknowledges, however, that "the cost of living in Bermuda is of concern to us." Gross domestic product figures for 2005, for example, place the mid-Atlantic archipelago highest in the world, at more than $76,000 per capita, more than $10,000 ahead of second-placed Luxembourg. GDP grew by a breakneck 9.1 percent in 2005. The construction industry is humming, as developers rush to build commercial and residential properties.

An advisory body, the newly appointed Council of Economic Advisors, will address the issue, he says.

In the meantime, captive insurance executives want to see some action regarding the lower cost of doing business in the domicile. A poll of captive managers last spring by Risk & InsuranceŽfound that Bermuda gets high marks as a place to do business, except when it comes to paying for services.

When asked what Bermuda's biggest challenge is as a captive domicile, here's what one poll respondent wrote: "Controlling costs and training and retraining qualified workers." Another wrote that the island's biggest challenge is the "high cost due to location and inability to attract the best mid-to-lower level people due to remoteness and limited population."

Clearly, Bermuda has a cost issue in the eyes of captive insurance managers. But they've operated on the island long enough to know that, while it's expensive to do business, they also get what they pay for.

"We are more expensive than other jurisdictions just because our cost of living here is much higher," said Peter Strong, president of Independent Management Ltd., a manager of captive insurance companies, in an interview last year. "To bring people onto the island to compete with these new international reinsurance companies, we have to match their salaries, otherwise we lose them. So salaries are high."

In all, 18 percent of the respondents said the island's cost structure is "poor," and 28 percent said it is merely "adequate." "Clearly, Bermuda's an expensive place to do business compared with the States, but I didn't find that when I compared it to Cayman that it was significantly more, and I think Bermuda, at least when I take 25 people down there to a board meeting, I think there's a lot more for them to enjoy down there than in the Caymans, if you're into golf and a few other things," says the chief legal officer of a Midwest-based hospital system that insures through Bermuda-based captives. "It offers more, and sometimes you have to pay a little more for it. But I haven't found it to be substantially more at all."

The responses of captive managers in regard to the cost of business in Bermuda stand in contrast to their favorable responses for other categories. (See chart, at right, titled "Analyzing Bermuda's Captive Infrastructure.")

For example, a total of 50 percent of the respondents rated Bermuda's captive infrastructure as "excellent," while 28 percent rated it as "exceptional."

William H. Baxley 3rd, vice president and treasurer of Dallas-based Freeman Co., says the services Bermuda-based captive managers provide are second to none. "The captive managers are extremely customer focused and pride themselves on providing superior service to their clients," says Baxley, who's been doing business on the island for about a decade. "They manage their charges as if they are their own, and that produces not only an excellent work product, but significant loyalty from their clients," he adds.

The reason skilled labor costs are so high is that there's a lack of supply. Captive managers have to compete for talent with the big insurers and reinsurers who poach accountants and actuaries from the Big Four accounting firms. According to the captive manager survey, 13 percent of the respondents said that the Bermuda labor/staffing market was "poor," and 24 percent rated it "adequate." (See chart above titled "Analyzing Bermuda's Labor/Staff Market.")

Brown says he wants to change that. The issue is to change laws not so much at the expense of the insurance and reinsurance companies, but rather to change them to improve the lot of Bermudians. "The time has come for Bermudians to become part and parcel of any and every industry that thrives in Bermuda," he says.

THE CAPTIVE FABRIC

Brown took office just a few months before existing work-permit regulations will begin to bite on April 1, when foreigners who have worked in Bermuda for six years or more must leave.

The impending effect of the six-year rule is causing some consternation in the captive sector, and David Ezekiel, head of the Association of Bermuda Insurance Companies, flew to London last fall to consult with lawyers on ways of meeting the requirements without damaging the industry and its prospects. Still, Brown is largely unconcerned. "I think that, first of all, the business community is probably more adept at handling change than the government might be," he says. "I expect, because work permits end at different times--they're staggered, there's not one day when the sky will fall--the companies will do what they have to do in preparation."

The challenge, he says, is going to be the processing of the new work permits in an efficient manner. To increase the supply of locally trained citizens who can provide skills to the captive management industry, Brown says he would implement an apprenticeship plan that would require outside employers to train a Bermudian every time the government issues a new work permit to them.

The plan will tell employers: " 'Yes, we will give you a work permit, but the next time you sign a work-permit application, you will also sign a commitment to train a Bermudian who has been selected by both of us,' " Brown says. "A Bermudian who is mutually acceptable. A Bermudian of whom you have said: 'In the three years of this work permit, this individual is trainable.' And we think that's the way we are going to weave Bermudians in," the premier explains.

Weaving Bermudians into the fabric of the insurance sector is designed to boost the supply of skilled labor and to finally put an end to Bermudians being "spectators to massive success," says Brown.

Some opponents fear that the combination of the permit rules and the escalating cost of doing business might simply drive business away from Bermuda.

One big company, not in the insurance field, has laid plans to move away from Bermuda this spring.

Such defections are not unusual, and the government is not unduly worried. For his part, Brown says the fear of corporate armadas setting sail for more sheltered ports is misplaced.

Alexander Scott, Brown's predecessor, says that "for every company that goes, two come." Asked if he shares that view, Brown says: "I don't know the exact figures, but I think the minister was indicating that there is a sustained interest in Bermuda on the part of international companies."

Brown has no doubt that his new proposals will benefit companies. "It will make doing business in Bermuda less expensive, because they will have fewer work permits to apply for," he says. "It will be less stressful because they won't have to wait on the work-permit process."

The strategy is to weave the insurance and reinsurance sectors, along with their supporting services, into the fabric of Bermuda and its citizens, many of whom have no contact with the insurance sector.

"I'm really looking forward to the day when the industry is no longer looked at as a spectacle from the Bermudian perspective, but that it's part and parcel of our community," Brown says.

It's in Bermuda's interest that that day should come sooner rather than later.

Offshore jurisdictions are lined up to offer existing or as yet unborn captive managers a home, should the new Bermuda environment prove inhospitable to their needs, or should costs price them out of the market.

"Bermuda is a very highly developed market, (but) there are a number of reasons why other centers such as the Isle of Man might be attractive for that business," says David Vick, the Isle of Man's insurance regulator. "At the moment Bermuda is the key center, but there are some interesting developments from an island context."

Cayman has attracted its first on-the-ground reinsurer in Greenlight Re. A new town, Camana Bay, is being built to accommodate the growth Cayman expects.

An editorial published recently by London's Daily Telegraph asks a pertinent question: "If every few years, the most experienced staff are forced to leave the country, it can make it hard to maintain momentum."

Indeed it can, but not if Brown has his way. In the interview, Brown was asked what message the readers of Risk & InsuranceŽshould take away from his new proposals.

"They should take away that we're going to engage," he says. "I'm going to challenge them (foreign corporations) to contribute more to Bermuda, not just by growing their business concerns, but by bringing their meetings, their colleagues, their families and their friends back to Bermuda, to enjoy the other side of Bermuda."

ROGER CROMBIE is a columnist for Risk & InsuranceŽ. He also covers issues on alternative risk.

March 1, 2007

Copyright 2007© LRP Publications