Bermuda: 2000 Special Report ~ E&Y Accounts For Bermuda's Success

Confidence in Bermuda is rock solid. Pass along Pitt’s Bay Road and you cannot fail to notice the new high-tech office blocks evidence of Bermuda’s position as a world player in the insurance industry. The building blocks are in place for even more long-term investment with the erection of new corporate headquarters for ACE and XL Capital; two of Bermuda’s flagship insurance firms.

Ernst & Young has witnessed first hand the extraordinary success of Bermuda and is a fully integrated part of Bermuda’s bubbling insurance factory. "Over the last few decades Bermuda has changed from being viewed as simply a captive domicile and is now seen as a Mecca for ideas and innovation. It attracts some of the brightest minds in the business," says E&Y Bermuda insurance partner and leader of their Insurance Focus Group Anthony Joaquin. He believes that the road of captive insurance growth may not always be smooth, but it definitely has some impressive mileage left., "As we enter the twenty-first century, the engine of economic growth of Bermuda’s offshore insurance industry is very definitely powering ahead at full throttle. This engine shows no signs of either misfiring or slowing down," he says. "True, every so often we encounter a US tax speed-bump, an OECD oil slick, or even a competing domicile hairpin curve, which forces us to make an unscheduled pit stop. But the crew is both resourceful and resilient, and with the utmost efficiency, care and dedication the necessary maintenance and adjustments are carried out, and the race continues."

E&Y puts the success of Bermuda down to the fact that its legislative process mirrors international change while continuing to maintain rigorous standards and integrity. In terms of new initiatives, Bermuda is developing more sophisticated captive vehicles aided by the Segregated Account Companies Act 2000, which aims to rework the existing rent-a-captive format.

Joaquin explains: "In the past, segregated cell companies have mainly taken the form of rent-a-captives. This new initiative is designed to make segregated cell companies easier and quicker to form, as well as clarify some of the liquidation considerations surrounding them." He believes that what E&Y clients really want is seamless service from the initial risk assessments performed in the U.S. or in Europe to the establishment of the risk management/financing solution in Bermuda. This is to include the related legal, tax and regulatory work, and the expertise to help clients monitor and adapt their solutions once established. He strives to offer company clients such a service.

In January 2000, the Investment Business Act 1998 became law in response to the high level of investment activity in the Bermuda marketplace. It established a licensing regime in Bermuda for those who continue to invest business in or from Bermuda. "This business act is set up to strengthen regulatory oversight over the different types of investment advisors and money managers who provide financial advisory and brokerage services to various sectors of the public," explains Joaquin.

Last year saw the introduction of the Electronic Transaction Act, which placed Bermuda at the forefront of e-business, not only by clarifying legislative terms, but also by recognising the need to establish a correct legal framework in which to conduct it.

"That was a major legal coup," says Joaquin. "This legislation establishes the legal principles for the conduct of e-commerce and the processing of electronic transactions. In doing so, it puts Bermuda on the map as a serious e-commerce hub. And when you’re the first to develop new concepts, it automatically gives you the edge over competition."

E-commerce has swept through all industries and is making a dramatic impact on the way business gets done. The captive insurance industry is no exception. Indeed there is evidence to suggest that the Internet will become the next major distribution channel for certain types of insurance products. "At the moment we’re experiencing the inevitable build-up of the next commercial wave. It promises to be huge, and the Electronic Transactions Act 1999 provides the perfect platform for Bermuda to compete in this new arena," says Joaquin.

E&Y Insurance Focus Group senior manager, Chad Critchley is seeing an increasing interest in the rent-a-captive products on offer in Bermuda. "We have increasingly been involved in discussions with clients and non-clients that are thinking of developing new rent-a-captive facilities," says Critchley, who believes that the increase in the use of these facilities is mainly driven by medium-sized companies. "The rent-a-captive facility provides these companies with affordable alternative risk transfer (ART) solutions and allows them to maintain control over the funding of the risks they place with the rent-a-captive," he adds.

The formation of these companies has increased in Bermuda in the last year, which is partly due to the insurance and management expertise available in Bermuda. "To operate these facilities you need the appropriate infrastructure within a management company to meet the reporting requirements of all the program participants in the rent-a-captive," says Critchley. "We also expect to see further growth in this sector when changes are made in the legislation for the formation of segregated cell companies," he says.

Insurance Focus Group senior manager, Jonathan Reiss also believes in delivering good customer service, tailored products and efficient service. He has been with E&Y since 1993 and puts Bermuda’s success down to striking the right balance between essential regulatory involvement and flexibility of business. "Bermuda has prospered over the years because of the integrity and expertise of business people here and I don’t want to see that changing," he says.

However, he stresses that the honing of regulation within the captive sector can only be a good thing. "Historically, long-duration business has played an insignificant part of Bermuda’s insurance base. This is now not the case, " he says. "The last few years have seen an increase in the number and types of long-duration companies and I feel enhanced insurance regulations for this sector of business is the way forward."

And with the improvements in regulation E&Y Bermuda’s services have increased tenfold. Initially, the public accounting firm in Bermuda focused on its core audit practice. Today, the audit practice is just a segment of E&Y’s business. "We are constantly coming up with ways of adding value to our clients by developing and combining our expertise in risk management, financial reporting, actuarial consulting, management consulting, product development and even legal and corporate secretarial matters."

He adds: "For us, our ability to meet our clients’ demands arises from the people we hire and the career opportunities that can be achieved at E&Y. We’re really not just accountants anymore. We have actuaries on staff and professionals with risk management and insurance qualifications."

Despite these developments Reiss believes deals haven’t suffered from an increase in complexity. "Generally, any new financial product is a re-characterisation, or at best, reinvention of an old and well-used business tool. Insurance risk securitisation is said to have been around many centuries ago," he says. "We still believe that most products written or offered by Bermuda companies are developed in places such as New York, Toronto or London, but what has changed in the last half-decade in Bermuda is that a significant volume of business is being generated by underwriters and business people here. Bermuda is no longer paper companies and back offices. There is true expertise and companies without a physical presence here are missing out."