It is almost a maxim that
the “Bermuda Model” of
captive insurance companies
has always been imitated,
but never paralleled. Can
Bermuda continue to live up
to this trailblazing
reputation in the changing
circumstances and in the
teeth of the Cayman
competition?
Given its strategically perfect location at the crossroads
of America and Europe, one would have thought it
would either expand enormously beyond its island
boundaries and become the hub of a consummate offshore
financial powerhouse for offering all kinds of financial services.
Or more likely, it would assiduously build up its national tourism
industry on the strength of its pristine scenic beauty and make
tourism its prime revenue earner. But Bermuda has done
neither. What it has done seems far more incredible. This
island, which is close to the size of New York’s business district
Manhattan (and that is not saying much) with a core
population of about 70,000 people has built up a thriving captive
insurance and reinsurance industry within its own confines
with a focus almost exclusively on insurance and reinsurance.
It may sound hyperbolical, but there’s no debating the fact
that over the years, the insurance sector in Bermuda has reached a level that is far more resourceful and vibrant than the insurance sectors in the US and UK
where global front-runners dominate the scene.
Simply put, captives in insurance are most akin to the backward integration and forward integration
unit that corporates go in for, to ensure a steady supply of raw material at reasonable cost, etc., for their
main production unit instead of relying on the market erraticities or for marketing linkages. Captive
insurance companies are typically offshore subsidiaries of insurance companies who cater to their
parents’ reinsurance (and less often insurance) needs, although more recently, non-insurance companies
in other sectors have taken a leaf out of the insurance sector book and flagged off the offshore captives.
In such cases, the captives, apart from offering reinsurance, also undertake the entire gamut of
insurance functions for the companies who float them. Multinationals resort to the “captive model” to
derive benefit from the centralized control of their massive insurance needs and operations. Add to
this, a sensible regulatory and almost tax-free regime, resourcefulness in meeting massive claims fast,
and one realizes that the popularity of the Bermuda captives is not an enigma at all. Perhaps, some of
this electrifying drive, ingenuity, and resourcefulness that the Bermuda captive displays at a time
when traditional reinsurers have thrown up their hands comes from a deep and confident stability
within itself, derived from the fact that its political system is the second oldest in the West. |
