The Wall Street Journal / October 29, 2001
By Larry Luxner
Few Bermudians doubt that last month's terrorist attacks in New York and Washington nearly devastated the island's already-stagnant tourism industry. Yet the island's financial services sector, which was also hurt by those same attacks, will bounce back much more quickly, local officials say.
Bob Steinhoff, chairman of the Insurance Advisory Committee of Bermuda, expects the island's insurance industry to lose $1.9 billion as a result of claims paid in connection with the deaths of over 5,000 people and the destruction of New York's World Trade Center.
"Like any major insurance market, Bermuda will have substantial losses arising from the Sept. 11 attacks," he said. As a result of those claims, he indicated, a number of Bermuda insurance companies will reflect losses for the quarter ended Sept 30; some could even reflect losses for the entire year.
"On the positive side, Bermuda is a strong and well-capitalized market," said Steinhoff, who's also a managing partner at KPMG. "Total capital in surplus exceeds $50 billion, and Class IV companies writing catastrophe business have capital in surplus exceeding $13 billion. They're in a strong position to pay their claims. We have no indication of any Bermuda companies that are experiencing solvency problems as a result of Sept. 11. Their underwriting programs are designed so that they can absorb several global catastrophes and meet commitments to their policyholders."
Ifor Hughes, assistant financial secretary under Bermuda's Ministry of Finance, is maintaining an optimistic outlook as well.
"Our insurance industry is going to continue," he said. "It's a strong industry and has a reputaition for being extremely well-capitalized. Some of the most notable insurers here clearly will have big claims to pay, but they're also well-equipped to pay those claims.
"Interestingly, what may shake out of this, and there's already evidence of this, is that there's opportunity for growth in the insurance market," Hughes added. "As insurers in other jurisdictions decide to withdraw from certain lines in the future, there is every likelihood that new Bermuda insurance companies will be established."
In fact, two new startups have been announced since the attacks. The first is Axis Specialty Ltd., whose sponsors, Marsh Capital, plan to raise $1 billion in fresh capital to provide additional insurance and reinsurance capacity. The second is Da Vinci Reinsurance Ltd., a joint venture between Renaissance Re and State Farm, which will be capitalized with at least $500 million.
"We're also in discussions with two other groups representing potential additional capital of $1.5 billion," said Steinhoff, though he declined to be more specific.
At present, around 1,500 insurance companies are registered to do business in Bermuda; of those, 200 are specialty or re-insurance companies; that includes a dozen or so Class IV insurance companies. Together, they employ 3,000 people, of which 2,000 are Bermudians.
Barry Shailer, an official of the Bermuda International Business Association (BIBA), said his organization lobbies the local government on immigration and other issues, and strives to make sure Bermudians appreciate the role international business plays in the local economy.
"Everyone understands the need to have very strict immigration controls on an island like ours, but we have to balance that with the need to attract skilled workers for the business community," says Shailer, noting that 10% of Bermuda's workforce are expatriates.
Shailer, who represents the Bank of Bermuda on BIBA's executive board, says the organization speaks for 30 to 40 local companies involved in servicing international business, including financial institutions like the Bank of Butterfield, law firms such as Conyers Dill & Pearman, and accounting firms like Ernst & Young.
"Following the events in the U.S., one of our biggest concerns is tightening up on regulations relating to the movement of international funds, and particularly how that might negatively impact offshore jurisdictions," said Shailer. "As a very highly regulated jurisdiction, the automatic assumption that when terrorist money is being tracked down it must therefore be in an offshore environment is a problem for us. It's an image thing."
Shailer stresses the difference between "quality" offshore jurisdictions like Bermuda and the Channel Islands, and other islands which he declined to name.
"We're not a banking center," he said. "We've only got four banks, all of which are local. We're generally well-equipped to address the global scourge of money laundering.We have to know who the owners behind the companies are. So whether they're drug dealers or terrorists, Bermuda is in pretty good shape when one considers the global context."
For nearly 15 years, Bermuda has a Tax Information Exchange Agreement in place with the U.S. government. It has also been given a seal of approval by the Organization for Economic Cooperation and Development (OECD), whose recent list of tax havens did not include Bermuda.
"We clearly have been through a number of reviews and have been found to meet internationally accepted standards," said Shailer. "We have a regulatory system that is sensible but not unduly onerous. In fact, Bermuda has been held up as a model for other offshore jurisdictions to be measured against. What those reviews did do was confirm Bermuda as a leading financial center, with strong anti-money laundering legislation and good governance."
Says former Premier Pamela Gordon, now a leader of the opposition United Bermuda Party: "We have deliberately placed ourselves at the high end of the market, because being at the high end offers everyone involved protection from the negative perceptions that are sometimes placed upon international business. We attach great importance to our credibility as an international financial jurisdiction."
In fact, Bermuda has done such a good job marketing itself to offshore companies that some worry the island's physical infrastructure is falling behind.
When asked to name Bermuda's biggest long-term challenge, BIBA's Shailer didn't hesitate: "Our No. 1 challenge is the pressure put on our infrastructure -- housing, schooling and roads -- resulting from our own success and growth."