JONATHAN KENT, a business reporter in Bermuda
Ewart Brown will live up to a promise he made last year when he steps down as Bermuda's premier in late October. He will also relinquish the leadership of the ruling Progressive Labour Party (PLP), whose membership will then choose a successor to head the government.
Brown's four-year tenure has been notable for soaring public spending, tax increases and race-based politics. For the international insurance industry, that has meant Bermuda has become a more expensive and less welcoming place to do business.
Three prominent lawmakers have thrown their hats into the ring to succeed him, and each is promising a friendly relationship with international business--the main pillar of the island's economy.
Red-hot favorite is the mild-mannered Finance Minister Paula Cox, who has long been touted as a natural successor within PLP ranks. The other candidates are Terry Lister and Dale Butler, both former ministers who left their cabinet jobs after public disagreements with Brown last year.
Cox has not only worked more closely with the insurance industry than any other politician in recent years, but she also works in it. She is a corporate counsel for ACE Ltd. The 50-year-old also has good family credentials. Her late father Eugene Cox was the man she succeeded as finance minister in 2004, and her brother Jeremy Cox is CEO of the Bermuda Monetary Authority, the local financial regulator.
As finance minister, Cox has led the island's lobbying effort in Washington against potential changes to the U.S. tax code that could be harmful to Bermuda. Her department has negotiated tax-information exchange agreements with more than 20 countries to put Bermuda on the "white list" of countries, those that the Organization for Economic Co-operation and Development (OECD) identifies as complying with international tax transparency standards.
However, as finance minister, she is vulnerable to attack on the burgeoning public debt, which is close to $1 billion, and the unpopular decision to raise employment tax from 14 percent to 16 percent in March's national budget.
Lister has promised a tax and spending review, should he become premier and a future "where each is to be measured by effort put in rather than race." He said that he wants to improve relations between government and international companies.
"We must dust off the welcome mat and start over, listening, facilitating and sharing," he put it.
Butler, a former school principal, publisher, businessman and long-standing lawmaker, has a reputation as a political maverick and is very much the outsider in the race.
Some international business sources, speaking off the record, have expressed support for Lister, whose background as a chartered accountant and businessman inspires confidence that he will keep the lid on public spending and avoid further tax increases.
Others favor Cox, as they believe she is more likely to be flexible on work permits policy, which currently imposes a six-year time limit on most foreign workers.
Other insurance leaders who spoke with Risk & Insurance® put a review of tax and immigration policies high on their wish list for the new premier. Endurance Specialty Holdings CEO David Cash sees these two areas as the major domestic concerns for the industry.
"It is fair to say that industry would like the next premier to make it a priority to revisit both issues as it is felt that the current status quo has made it both difficult and expensive to attract and compensate senior staff," Cash said.
The industry wants to see the work-permit process altered to make it easier to hire and retain senior staff for long periods, he added, while this year's payroll tax increases have been "significant" in adding to the cost of doing business.
Last year, Bermuda's international business sector shed 7 percent of its jobs, according to government employment figures, a dramatic reversal for a sector that has enjoyed almost uninterrupted growth over the past two decades.
Bradley Kading, president of the Association of Bermuda Insurers and Reinsurers (ABIR), said that he hoped the new premier would recognize the value of "guest workers" to the local economy.
"Locating international workers in the insurance sector in Bermuda can lead to increased, not fewer, job opportunities for Bermudians," he said.
ABIR represents 22 reinsurers that employ around 1,750 people--two-thirds of whom are Bermudian.
After all, global insurers have a choice of where to locate jobs, according to Charles Dupplin, CEO of Hiscox Bermuda, and Bermuda has been becoming an expensive option.
"When you take on a junior accountant, it's much more expensive to do it here than in London, and more expensive again than Lisbon, where we also have an office," Dupplin said.
"The recent increases in employment tax have only served to exacerbate the cost differential. I think we are pretty close to the point where, for some of the larger employers in Bermuda, it might be worth their while to export a lot of jobs outside Bermuda," he added.
Hiscox, which moved its domicile from London to Bermuda in 2006, employs some 40 people on the island.
OTHER BIG ISSUES
Potential external legislative threats like the Neal Bill coming out of the U.S. Congress, which would not allow U.S. insurers to avoid tax on excess reinsurance premiums paid to offshore affiliates, and imminent regulatory changes like Solvency II in Europe will require the new premier to employ skills of persuasion on both sides of the Atlantic, both Kading and Cash said.
Some of these issues are "inherently political in nature, and so it is important to industry that the next premier is both willing and able to lobby effectively on behalf of the industry in Washington, D.C., and in Europe", the Endurance boss added.
Another issue for insurers is government transparency. In recent years, several government departments have failed to keep their financial accounts up to date. Former Auditor General Larry Dennis claimed that this could "create an environment conducive to perpetuating and concealing fraud."
Accusations by opposition lawmakers that lucrative government contracts have gone to personal friends of Premier Brown have only increased concern about the potential for corruption. Brown's predecessor Alex Scott promised anti-corruption laws, including whistleblower protection provisions, but legislation has failed to materialize.
"The more openness there is with government processes and records, the better the chance the government has to dismiss unfounded rumors," Kading said, urging the incoming premier to raise standards of transparency to the levels of the island's trading partners.
The PLP delegates are scheduled to vote on October 28.
October 15, 2010
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