The Wall Street Journal / October 29, 2001
By Larry Luxner
Unlike much of the Caribbean, where economic growth has often failed to keep pace with rising population, the overriding concern in English-speaking Bermuda is how to preserve the island's wealth.
Despite a density of nearly 3,000 people per square mile -- making it one of the most crowded territories in the world -- lush, green parks are plentiful, litter is nowhere to be seen, and early all Bermudian families own their own homes. At least 5% of the island's land area is devoted to championship golf courses, and it's hard to find any real poverty.
That's because Bermuda, located 586 miles east of Cape Hatteras, N.C., and 3,445 miles southwest of London, has transformed itself into the world's reinsurance capital. Favorable tax laws and incentives, a 90-day licensing turnaround and political stability have made Bermuda an international haven for corporate-owned insurance captives, excess liability underwriters and catastrophe reinsurers. More than one-third of the world's captive insurers are based in Bermuda.
The lack of corporate and personal income taxation has attracted other financial industries as well -- all of which have given Bermuda's 62,000 lucky inhabitants a per-capita income of $42,300, third-highest in the world after Switzerland and Luxembourg.
"Bermuda is known as a safe jurisdiction, a jurisdiction with integrity," says David Dodwell, owner of a luxury hotel, The Reefs, and the island's former tourism minister. "North Americans like the fact that it's foreign, and yet has a system and set of laws that are very strong. When you wrap all that all into one, we have the right mix of physical and legal infrastructure to be attractive to both businesses and tourists."
A British colony since 1684, Bermuda is Great Britain's oldest self-governing overseas territory. In August 1995, a referendum was held to decide whether the island should become independent from Great Britain. Voters rejected the idea by a three-to-one margin, leading then-Premier John Swan to resign. Three years later, the United Bermuda Party -- which had been in power for over 30 years -- was defeated by the Progressive Labour Party.
Today, the PLP, led by Premier Jennifer Smith, has 26 seats in Bermuda's 40-member House of Assembly; the UBP, headed by former premier and now opposition leader Pamela Gordon, has 14.
At present, Bermuda is home to over 9,000 companies engaged in investment holding, insurance, commercial trading and consultancy services and shipping. Financial services as a whole represents a $55 billion industry -- much of that in the insurance sector, which is led by giants such as Ace Insurance, XL and American International Group (AIG).
Eddie Saints, general manager of Cable & Wireless Bermuda Ltd., says one reason so many companies invest in Bermuda is its highly developed telecom infrastructure. Fixed-line telephone penetration here exceeds 89 per 100, its mobile penetration rate is nearly 50%, and over half the population boasts Internet access.
Two years ago, Bermuda became only the second jurisdiction in the world, after Singapore, to legally recognize digital signatures -- one of the many provisions of the Electronic Transactions Act of 1999. It also has the world's only Ministry of Telecommunications and E-Commerce.
"Dependency on traditional services is quickly diminishing, though we see great opportunities to evolve into the e-commerce arena," says Saints, whose company's revenues have fallen by half since the advent of local competition in 1993. Cable & Wireless Bermuda, which now offers only international telecom services, currently generates over 60% of all data communications traffic in the Caribbean.
On Aug. 23, C&W inaugurated a $10 million offshore e-commerce center that Saints says "now hosts a number of world-class companies which are taking advantage of Bermuda's global reach as well as fiscal benefits" offered to them.
That global reach is demonstrated by one of the island's oldest companies -- the Bank of Bermuda, incorporated in 1889. Today, the bank has assets of $11.3 billion and operates 14 overseas branches from Hong Kong to Bahrain. It was also the island's first company to win an exemption from Bermuda's "60-40 rule," which mandates that all firms competing in the local economy be at least 60% owned and controlled by Bermudians.
Exempting banks from this 60-40 rule has sparked an opening up of the island's financial services sector, says Bank of Bermuda's chief compliance officer, Barry Shailer.
"There is no offshore banking industry in Bermuda, which makes it very diffierent from other juristictions," says Shailer. "Historically, we've only had three or four banks here at any given time, and they are locally owned. As a consequence, people in the banking business have a vested interest in making sure that the type of business we take on will be good for Bermuda in the long term. That's helped in keeping out the bad business that would otherwise find a home here."
Besides Bank of Bermuda, the island is also home to Bank of Butterfield, Bermuda Commercial Bank and Capital G, which received its license early this month, the first new banking license in several decades.
Meanwhile, Bermuda's $430 million tourism industry is trying to recover from the Sept. 11 terrorist attacks in New York and Washington. The attacks have forced airlines to slash itineraries and led thousands of would-be tourists to reconsider their travel plans.
"With every disaster, there's an opportunity," said Gordon, the opposition leader. "While [the attacks] have created significant areas of opportunity for the insurance industry, it's brought the local business community to a standstill. Bermuda's tourism product was abysmal, even before Sept. 11. And now, the tourist industry is as close to devastation as it has ever been."
In 2000, total air and cruise-ship passenger arrivals came to 530,000 -- down from 548,000 in 1999 and 557,000 the year before. Occupancy in the island's 2,300 hotel rooms has also been dropping steadily over the past three years, and in the wake of the terrorist attacks is now estimated at 30-35%, half the normal rate this time of year.
"We predict that 2001 will be the worst in 25 years in terms of tourism arrivals," says Dodwell. "Unfortunately, people tend to look at marketing your way out of a problem. Our challenge is not just a marketing challenge, it's restructuring the product itself. For example, customers have been telling us that we lack sufficient evening entertainment. Bermuda's nightlife is not what tourists think it should be."
In the midst of all this, Bermuda's quest for independence from Britain hasn't been completely forgotten. Gordon says she expects the current government to raise the political status issue fairly soon, since a majority of the PLP's leaders favor independence.
"My position will be what it's always been, that the people of Bermuda should decide this issue by way of a referendum." But Gordon, who served as premier from 1995 to 1998, added that "what happened Sept. 11 will probably make a lot of people who were strong supporters of independence stop and think: is this really what we want, to be going at it alone, at a time when everybody needs allies?"
Perhaps that need for allies is leading Bermuda -- which traditionally has gone out of its way to emphasize that it is not a part of the Caribbean -- to begin reaching out to other English-speaking islands.
At a recent conference in the Bahamas, Premier Smith announced she would seek associate membership for Bermuda in the 15-nation Caribbean Community. "We recognize the important role played by Caricom," she told fellow leaders, "and we want to join you in facing the challenges of the region."