The notion is far from ridiculous now, and Kempe is part of the reason why. In 1954, he introduced mutual funds to Bermuda through his law firm, Appleby, Spurling & Kempe. Collective investment vehicles now have $130 billion in Bermuda.
He later introduced Fred Reiss to Bermuda at a dinner party in England, a conversation from which was born the captive insurance industry. Kempe was a partner for decades in the U.K. firm of Thomas Miller. When he retired in 1980, Kempe's law firm represented 40 percent of Bermuda's captives, which meant 15 percent or more of the global captive market. The firm's successor, Appleby Spurling Hunter, probably still represents 10 percent of the world's captives.
Kempe's prediction was not so far-fetched. Bermuda and Switzerland are remote, essentially closed communities. Both are separated from the rest of the world by natural features, one by mountains, the other by water. Both have, over the years, developed an expertise in servicing the financial needs of others. Switzerland and Bermuda lie at the crossroad of bigger countries.
Bermuda and Switzerland have low taxation and an expensive government. Both enjoy the goodwill of their neighbors, even if each is occasionally discomforted by the zeal with which those neighbors tax their people. Bermuda and Switzerland have armies, although neither has ever fought a war on its own territory. Citizens of Bermuda and Switzerland speak their neighbors' language, adapted through the use of different tongues, often incomprehensible to the outsider.
Not surprisingly, both have similar social problems, those of affluent communities anywhere in the world: drugs, youth problems, social inequalities.
Switzerland and Bermuda restrict immigration and make use of a temporarily imported workforce. Bermuda and Switzerland also have some of the world's most expensive grocery stores and rents, outside of New York.
And now, as Kempe foresaw, both have giant gobs of other people's money, their commission on which, one might say, helps defray the expenses of the people who live there. Switzerland has banks, and Bermuda has insurance companies.
The scale on which Bermuda has insurance companies today would have been all but incomprehensible when Kempe made his statement. Then, Bermuda's insurance capital was, essentially, zero.
This spring, when the 2004 annual reports are issued, the Bermuda market will report capital of more than $60 billion, and net premiums earned for the year of more than $50 billion. Net income for the Bermuda companies in 2004 will total $6 billion or more. GDP in Bermuda has risen from maybe $150 million when Kempe made his statement, to $4 billion today.
Men and women decide the fate of industries and nations. Bermuda's destiny has been the result of the interactions of everyone in the community, but a handful of men and women walk taller than others. Kempe walked pretty tall. He changed the cash flow of a nation.
ROGER CROMBIE, a Bermuda-based writer, editor and former accountant, is a regular columnist for Risk & Insurance®, and also covers issues on alternative risk.
March 1, 2005
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