US agrees Bermuda is not a tax haven

INSURANCE UPDATE www.bermudabda.com

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The United States government has conceded that Bermuda is not a tax haven.

The refreshing, yet surprising, backing of their tiny island neighbour by the world’s pre-eminent super-power came through a frank exchange between a high ranking US diplomat and a Bermuda radio and television correspondent during a FATCA news conference in Bermuda.

The press event was called as US Consul General to Bermuda Robert Settje and Bermuda Minister of Finance the Hon. E.T. “Bob” Richards signed an intergovernmental agreement to implement the Foreign Account Tax Compliance Act (FATCA) to promote transparency on tax matters (see FATCA story page 12).

After prepared statements, a supplementary question from veteran journalist, Bryan Darby, a senior correspondent with VSB – the Bermuda NBC affiliate – asked: “Can Bermuda be assured of America’s support in the future at trying to rid us of this scurrilous label of being called a tax haven – support which has been lacking up until now?”

Mr. Settje chuckled at the boldness of the question, but responded: “Yes, Bermuda can be assured of our support in that regard.

“Clearly, Bermuda is what we might refer to as a low tax or different tax jurisdiction, but we in the United States Government and the United States understand that Bermuda is not a tax haven in the way in which that term is normally used.”

Latest news from The World’s Risk Capital 1

Continued on page 10 ›

Surge in new insurers

Robert Settje

US Consul General

Registrations of new Bermuda insurers surged by 72 percent for the year 2013, as 91 new insurance companies were formed in the Island, including 24 new captives.

The Bermuda Monetary Authority said the new firms covered both the traditional and fast-growing alternative risk transfer sectors of the insurance market.

The total number of new insurers rose from 53 in 2012 and the captive number doubled from 12. There were 16 new commercial insurers (14 in 2012) and a record 51 SPIs (27 in 2012).

BMA CEO Jeremy Cox said, “Achieving this level of business in today’s competitive environment reinforces Bermuda’s unique ability to service the full spectrum of high-end, global (re)insurance business.

“It also demonstrates the continued relevance of Bermuda as a jurisdiction as the market seeks diversification in risk transfer, with alternative products increasingly complementing traditional reinsurance.

“The new registrations include significant firms in the traditional reinsurance space, including a Class 4 reinsurer,” Mr. Cox explained. “We also saw additional core business in the form of the 24 new captives registered during the year, building further on Bermuda’s leadership position in that sector.”

Mr. Cox also noted the record number of Special Purpose Insurers registered last year, reflecting in particular how Bermuda has emerged as a leading jurisdiction for the creation, listing and servicing of Insurance Linked Securities (ILS).

By year end, $9.2 billion out of the $21.0 billion of global ILS issuance was sponsored by Bermuda-based SPIs, representing 41 percent of the world-wide ILS stock.

“The 51 new SPIs set up last year almost doubled the 2012 total, a remarkable achievement,” he said. “This reflects to a great degree the significant work Bermuda’s industry service providers and the Bermuda Stock Exchange conducted during the year to promote Bermuda as the premier jurisdiction for ILS.

“Data from the Authority’s new Bermuda ILS Report issued late last year also highlighted that Bermuda has been successful in broadening the type of business being covered, as well as becoming the leading jurisdiction for ILS transactions. This would include traditional cat bonds, property and property catastrophe, along with other shorter-term risks.”

“Therefore, Bermuda has been able to build on our long-standing experience in insurance regulation and alternative risk transfer to create innovative opportunities for both investment and capital development, primarily for the US and European markets.

“Bermuda has balanced this with building further on the captive and commercial insurance platforms that have enabled business to grow here over many decades. We look forward to seeing another successful year of new registrations in 2014.”

Jeremy Cox

CEO

Bermuda Monetary Authority

France’s surprise placement of Bermuda on an economic blacklist this summer has been reversed after just a few months.

The French government’s short-lived allegation that Bermuda was a tax haven came as Bermuda continued its leadership in tax transparency with the world’s leading economic nations.

In fact, France itself is one of 60 countries with which Bermuda has signed accords to exchange tax information.

The French Ministry of Finance informed the French Association of Financial Management (AFG) in December that Bermuda is removed from the list for 2014, and that threatened retaliation measures will not be applied.

France is not the largest trading partner of Bermuda, although the country has a major involvement in the Bermuda market by way of ownership in, and trading with, Bermuda-based companies.

Still, local officials moved swiftly to investigate the French claim.

Bermuda’s Finance Minister E.T. “Bob” Richards said he was thankful to British officials, including the Chancellor of the Exchequer in London and the Bermuda governor, who supported the Island’s efforts to have the order rescinded.

Bermuda and French officials were quickly able to arrange a meeting and the Minister said that officials were pleased that Bermuda was subsequently delisted.

Mr. Richards said: “I was impressed with the goodwill shown by French officials in working with Bermuda officials to resolve the matter before the end of the year.

“We were confident that any entry on France’s list would be very short-lived as Bermuda is globally recognized as complying with the highest international standards on tax transparency and compliance.”

Bermuda is among the leading international financial centers with

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French blacklist reversal

Tax pact brings eastern promiseBermuda has signed bilateral Tax Information Exchange Agreements (TIEAs) with half of the members of the European Union.

And the Organisation for Economic Co-operation and Development (OECD) rates Bermuda largely compliant - on the same level as many of the world’s largest economies, including the US, the UK and Germany - in terms of international standards of tax transparency.

One of 50 countries assessed in ten areas, Bermuda was rated ‘compliant’ in seven. In the remaining three — ownership, accounting and confidentiality — it was adjudged ‘largely compliant’.

Finance Minister E.T. “Bob” Richards commented: “These OECD ratings follow a similar tiered rating system as the IMF ratings; Compliant, Largely Compliant, Partially Compliant, Non-Compliant.

“I am very pleased Bermuda has received the rating of Largely Compliant, the same as the UK, USA and many other G8 nations. These ratings are comprehensive and carried out in an assessment methodology of total transparency as every country was assessed on its legislative and procedural regime for administering TIEAs.”

transparency agreements as it now has over 60 tax transparency agreements when counting both bilateral and multilateral agreement partners.

In September, Bermuda joined the OECD Multilateral Convention on Mutual Assistance in Tax Matters to facilitate cooperation between jurisdictions in the assessment and collection of taxes, in particular to combat tax avoidance and evasion.

France’s blacklist of about ten “uncooperative tax havens” ensures tougher financial levies as it tries to crack down on internal tax evasion with some of the harshest rates on investors from countries deemed to be uncooperative.

It includes a 75 percent withholding tax on French source flows to those territories and other measures.

France has one of the most severe tax regimes and is among a growing list of western countries attempting to shore up its tax base in the face of spiraling budget deficits, exacerbated by the 2008 financial crisis.

Bermuda and France signed a tax information exchange agreement (TIEA) in October 2009 that allows both countries’ tax authorities to request tax information to assist in the investigation of civil and criminal tax matters.

At that time, French President Nicolas Sarkozy was already on record that jurisdictions failing to meet global tax transparency standards by March 2010 should be punished with sanctions.

But Bermuda was assessed as meeting the international tax standards by the OECD Global Forum’s annual assessment of progress in August 2009.

And that September, Bermuda was elected a Vice Chair of the Steering Group, the policy-making body of the Global Forum – the only non-OECD country of the Chair and Vice Chairs. At the time, France and other TIEA partners extended its praise to Bermuda for this achievement. France was Chair of the Peer Review Group responsible for the universal, robust and transparent monitoring and Peer Review process.

Finance Minister E.T. “Bob” Richards meets in London with Polish Ambassador to the UK Witold Sobkow

2014 Volume 1

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Emerging from retirement, Brian Duperreault has returned to the reinsurance industry adding luster to the substantial Bermuda insurance market, a year after retiring from global broker Marsh.

The accomplished Mr. Duperreault is again leading a large Bermuda reinsurer, after his investor group completed the acquisition of SAC Re, Ltd., a Bermuda-based Class 4 property and casualty reinsurer.

Hamilton Insurance Group, Ltd. has re-named the reinsurer Hamilton Re, Ltd. and Mr. Duperreault is the Chief Executive Officer.

He commented: “The Hamilton Re team looks forward to bringing a fresh approach to insurance and reinsurance, one based not just on world- class underwriting, but also a strong foundation of large data analytics, research, and fully-integrated technology. We are excited to get to work with our clients.”

And another industry icon, Sanford I. “Sandy” Weill, has now become Chairman of the group’s Board of Directors. Mr. Weill was largely responsible for what was then, the largest merger of Travelers and Citicorp in the 1990s. Mr. Duperreault said that it was an honor to work with someone who has been at the forefront of change.

As expected, ratings agency A.M. Best Company, Inc. quickly removed the SAC Re’s rating from under review with negative implications and affirmed the rating for Hamilton Re, Ltd. “A-” (Excellent) with a stable outlook.

SAC Re was a hedge fund style reinsurer launched by hedge fund manager Steven A. Cohen and his firm SAC Capital.

As Hamilton Re, it entered the market just in time for January renewals, one of the key times in the year that reinsurance contracts are traditionally agreed.

Mr. Duperreault has just recently fulfilled his duties as chairman of a Bermuda commission on Bermuda government spending.

The new life of Brian

Brian Duperreault

Chief Executive

Officer

Hamilton Re

In March 2004 he was elected to the board of directors of Tyco International - the world’s largest pure-play fire protection and security company – of which he is currently lead director.

Until his retirement in December 2012 he was president and CEO of Marsh & McLennan Companies, the global professional services firm offering clients advice and solutions in the areas of risk, strategy, and human capital. Marsh is a global leader in insurance broking and risk management.

Prior to that, he served as non-executive chairman of ACE Limited, the global insurance and reinsurance company. He was CEO from October 1994 through May 2004, and company president from October 1994 through November 1999. He was largely credited as leading from his Bermuda office the team that built ACE into a global insurance and reinsurance powerhouse.

Prior to joining ACE, Mr. Duperreault served in various senior executive positions with American Insurance Group (AIG) and its affiliates from 1978 to 1994.

He is a member of the boards of the International Insurance Society, the IESE Business School and the Insurance Information Institute.

Mr. Duperreault also serves as chairman of the US Federal Advisory Committee on Insurance, the Board of Overseers of the School of Risk Management of St. John’s University and the Bermuda Institute of Ocean Sciences.

A.M. Best noted that Hamilton Re’s ratings are based on its excellent risk-adjusted capitalization, knowledgeable management team and prudent business plan.

The report stated that partially off-setting these positive rating factors are the start-up nature of the company, the greater investment risk associated with an alternative investment strategy, as well as the increased competition in the reinsurance marketplace that may challenge some of the company’s business plans.

Bermudian legislators continue, however, to agree to new laws which alter the tax information exchange framework to ensure international financial regulation compliance.

They recently passed legislative amendments which would have the Bermuda Supreme Court issue - possibly during in-camera and ex parte hearings - compulsory orders against those who are the targets of a foreign government’s enquiry.

Attorney General Mark Pettingill told Parliamentarians that the changes would ensure consistency and compliance with TIEA standards recommended by the OECD.

A special treaty unit of the Ministry of Finance has been responsible for negotiating TIEAs directly with nearly 40 nations, and entered into multi-lateral pacts that engage an additional 20 countries.

The latest TIEA was signed by the Minister of Finance with the Republic of Poland at the Polish Embassy in London.

Mr. Richards noted: “Signing a TIEA with Poland has been a long time in the making and represents the beginning of an official exchange of information relationship with Poland upon which the Government of Bermuda hopes to build a long and fruitful partnership.”

With these bilateral treaties Bermuda establishes a direct treaty relationship, which in this case, is with the Minister of Finance for Poland.

The Minister said the Polish TIEA was crucial, as the Eastern European country is a member of the EU.

The EU has always been one of the main regions with which Bermuda has a strategic and economic relationship and Poland is one of the many countries Bermuda reinsurers do business with in Europe.

The benefit of signing the Poland TIEA is that it allows for tax transparency and information exchange on a by-request basis, where previously there was no formal avenue available.

Quality Supervision for Bermuda: Embedding an Effective, Globally Recognised Framework

The Authority continues to develop regulation for Bermuda with an independent perspective, while maintaining a high level of

cooperation internationally.

In 2013, we continued to make progress against several key initiatives. We embedded the final stage of group supervision within Bermuda’s insurance framework, finalised the implementation of our internal capital models framework, and introduced a trial run for the revised reporting and e-filing capabilities for Bermuda’s captive sector. In addition, we successfully updated Bermuda’s standard capital model, the Bermuda Solvency Capital Requirement (BSCR) to ensure it more appropriately reflects the risk characteristics of Bermuda’s Long-Term (life insurance) sector.

In 2014, the Authority will build on work completed to date and continue to embed progressive framework enhancements throughout Bermuda’s insurance regimes at a pace that is appropriate for the firms which operate here. Major milestones will be achieved in the following areas:

Group Supervision

Since 2011 the Authority has implemented group supervision on a phased basis for Bermuda’s largest insurance groups. In 2014, the Authority will continue rolling out the framework, extending group supervision to groups where the designated insurers are Class C, D, E and 3A entities.

In addition, having concluded market consultation last year, we will implement group capital requirements in 2014.

The Authority’s schedule of supervisory colleges will also continue throughout 2014. We will both participate in colleges and host sessions when the Authority is the Group Supervisor. Our experience with colleges to date has reinforced the benefits of continuing to conduct these meetings using both virtual and in-person sessions, thereby ensuring dialogue can continue without any impediments.

Long-Term Insurer Regime

The major element of our work to bring Bermuda’s Long-Term insurers within scope of the Authority’s enhanced risk-based solvency framework is now complete.

The Authority’s modified BSCR, specifically tailored to account for the particular risk characteristics of life insurers, and incorporating valuable input from extensive market consultation, will take effect in 2014 for commercial Long-Term firms (i.e., Classes C, D and E). This will be the first of a three-year phased implementation for this sector, enabling the market to make necessary adjustments as they transition to the full enhanced capital requirement.

Internal Capital Models (ICM)

The Authority began accepting ICM applications in 2013, and will continue to review submissions received for both General Business and Long-Term insurers throughout 2014.

From the desk of the Regulator

Enhancing our Supervisory Toolkit

The Authority will continue to develop our supervisory toolkit throughout 2014 to ensure that Bermuda’s insurers are being supervised appropriately. Major pieces of the toolkit are already in place: the BSCR; eligible capital; and enhanced reporting requirements. The Authority plans to progress its position on the economic balance sheet for Bermuda’s commercial insurers by continuing discussions with the respective industry associations and monitoring ongoing developments at international standard-setting bodies including the Financial Accounting Standards Board and International Accounting Standards Board.

Enhanced Reporting for Limited Purpose Insurers

To maintain an effective and practical regulatory environment for Bermuda’s captive insurers, in 2013 the Authority conducted a successful e-filing trial-run of the Authority’s Enhanced Statutory Financial Return.

Specifically, the trial-run tested an Enhanced Statutory Financial Return which will become an annual statutory requirement for Bermuda’s limited purpose insurers.

The Return consolidates previous submissions to the Authority, and also includes a risk self-assessment. In addition to creating greater efficiencies in the filing process for companies and the Authority, this enhanced data collection will provide for further analysis of Bermuda’s captive market to ensure an appropriate level of supervision is maintained for this important sector. Further, aggregated data will also be published to provide a wealth of knowledge regarding the characteristics of, and trends within, Bermuda’s captive market.

International ParticipationE

Effective 1st January 2014, Bermuda will have conditional qualified jurisdiction status by the National Association of Insurance Commissioners (NAIC).

The NAIC developed the “Process for Developing and Maintaining the NAIC List of Qualified Jurisdictions” (NAIC Process) to evaluate the regulatory frameworks of non-US jurisdictions for reinsurance collateral reduction purposes. Approval under the NAIC Process means that reinsurers licensed and domiciled in Bermuda will be eligible to be certified for reduced reinsurance collateral requirements under the NAIC’s Credit for Reinsurance Model Law. The other three jurisdictions approved by the NAIC in December 2013 were Germany, Switzerland and the United Kingdom.

The Authority is very pleased with the outcome of this initial step in the NAIC’s Process. Having this status is highly relevant to the Bermuda market, in terms of potentially facilitating efficiencies in the cross-border operations of Bermuda reinsurance with the US insurance market.

In September, the Authority was the first insurance supervisor to agree to participate in an expedited review under the NAIC Process. The full review of the four approved jurisdictions will take place during 2014.

On the other side of the Atlantic, we will continue to monitor developments in relation to Europe’s Solvency II Directive.

In conclusion, 2013 has been another very busy year at the Authority and 2014 promises more of the same. As a result, we continue to add strategically to our existing depth of technical resources and expertise in order to deliver risk-based supervision effectively and efficiently. Our priority remains to protect policy holders and implement proportionate regulations that remain workable for Bermuda’s insurers.

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Craig Swan

Managing Director,

Supervision

Bermuda Monetary

Authority

Bermuda’s rapid emergence at the center of the burgeoning business for insurance and risk linked securities prompted the development of a Bermuda-based business convention for the marketplace to assemble at an updated Pier 6 meeting space on the Hamilton waterfront.

The ILS market is projected at more than $30 billion, and growing from its current estimate of 15 percent of the property catastrophe reinsurance market. It is expected to represent $100 billion of reinsurance capacity within the next five years.

But the idea for a Bermuda ILS conference where participants could actually network, went from a consensually agreed upon goal, to a realized highly-regarded

Convergence Bermuda 2013 event in Bermuda’s capital - and now there are plans to make it an annual rendezvous.

Officials are busy working on convening another memorable event this coming November, after the first one brought so many key players together for productive meetings.

Many of them were able to hear one of the most influential men in the last century provide insight into the future of global computing.

Steve Wozniak was the chief designer of the first computers at the beginning of Apple Computers in 1976, when he co-founded Apple with Steve Jobs and Ronald Wayne.

The decorated inventor talked of the evolution of artificial intelligence just around the corner, when computers would become more human, and possibly think as well as the human brain in the next two decades.

With some dramatic insights into Apple’s early years, he was addressing insurance and reinsurance executives, modeling analysts, investors, capital markets advisors, fund administrators, deal counsel, regulators, investment managers, auditors and many others, in a presentation sponsored by KPMG Bermuda.

Jason Carne, Head of ILS and Managing Director at KPMG Audit Limited in Bermuda and a member of the ILS Bermuda Committee said: “Steve Wozniak was the ideal speaker at the inaugural ILS Bermuda Convergence Event, sharing with us his experience with innovation, vision and entrepreneurial spirit, all key behaviours we are witnessing in the ILS market today.”

His ILS Bermuda colleagues believe the conference helps cement Bermuda’s position as a global leader in reinsurance and the top domicile for ILS.

Andre Perez, CEO, Horseshoe Group, commented: “Above all, we wanted this event to demonstrate why Bermuda is a world-class reinsurance domicile and the worldwide centre of excellence for ILS and Convergence. For those looking to set up an ILS or a Reinsurance infrastructure, we want to assure them that Bermuda is the best place to do it.

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ILS meetings lauded

2014 Volume 1

Andre Perez

President and CEO

Horseshoe Group

Kathleen Faries

CEO

Tokio Solution

Management

Craig Cannonier

Premier of

Bermuda

Aon Benfield Securities, the investment banking division of global reinsurance intermediary and capital advisor Aon Benfield, has underwritten and placed a $250 million catastrophe bond issued by VenTerra Re Ltd, a Bermuda-based special purpose insurer.

VenTerra Re Ltd. is providing subsidiaries of QBE Insurance Group Limited with $250 million of multi-year collateralized protection against US and Australia earthquakes and Australia cyclones, on an indemnity basis for a period of three years.

VenTerra Re is the first-ever catastrophe bond that has secured coverage for Australian perils for a primary insurance company on an indemnity basis.

Aon Benfield Securities acted as Joint Structuring Agent and Sole Bookrunner on the transaction.

BERMUDA SHORTS

“This innovative sector has in its own way revolutionized how property catastrophe reinsurance is transacted and is causing traditional reinsurers to re-think their business model for this particular line of business.

“While the impact of the ILS market is mostly felt in property catastrophe reinsurance, there is no sign of stopping. I can see us talking at our 10th ILS Bermuda Convergence event about how ILS and collateralized structures are now present in all lines of reinsurance and insurance business.”

Meanwhile, Kathleen Faries, CEO, Tokio Solution Management said: “Bermuda has continued to respond to the needs of the market over the years. From the early introduction of captives, to developing a solid regulatory framework to allow for much needed capacity to flow quickly after major cat events, and now bringing the expertise, legislation and services needed to enable new investors access through a variety of platforms.”

Arthur Wightman, Insurance Leader, PwC Bermuda said, “Bermuda’s ascendancy to a global leadership position in reinsurance and the No.1 domicile for insurance-linked securities is on account of a number of structural advantages but principally because of its capacity to solve problems and innovate.

“In an environment where risks are constantly evolving and the demands of risk managers and investors intensify, Bermuda is at the front edge of the industry’s response.”

Earlier, there was stated support for the industry from the Bermuda government with Premier Craig Cannonier adding, “The Insurance Linked Security industry has grown dramatically in Bermuda, most notably since the introduction of the Special Purpose Insurer (SPI) legislation in 2008.

“ILS is an exciting industry for Bermuda because it demonstrates our responsiveness to an ever-changing business environment and it highlights Bermuda’s drive to maintain its lead position as a top class domicile for financial services.”

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Aspen SPISilverton Re is a new Bermuda-domiciled special purpose insurer formed to provide additional collateralized capacity to support the global reinsurance business of Aspen Reinsurance.

Established by the Aspen Capital Markets division of Aspen Re, the new reinsurer has been capitalized initially at $65 million with $15 million of funding provided by Aspen Re and additional funding secured from third party investors. Aon Benfield Securities, Inc. acted as the placement agent.

Brian Tobben, Managing Director of Aspen Capital Markets, said: “This is an important step as we develop our capabilities in the alternative reinsurance market. Our objective is to partner with the capital markets so that we are able to provide investors with access to

diversified natural catastrophe risk backed by the distribution, underwriting, analysis and research expertise of Aspen Re.”

Silverton Re will enter into a quota share retrocession agreement with Aspen under which it will reinsure a proportionate share of Aspen’s globally diversified property catastrophe excess of loss portfolio.

James Few, Chief Executive Officer of Aspen Re, added: “When we established Aspen Capital Markets earlier this year, our focus was to develop alternative reinsurance structures to leverage our existing underwriting franchise, increase our operational flexibility in the capital markets and develop strong partnerships with new investors. Establishing Silverton Re is the starting point for this strategy and we are excited by the partnerships we are building.”

James Few

CEO

Aspen Re

Market initiative to grow Bermuda business

Stephen Lund is CEO of the newly created Bermuda Business Development Agency (BDA). Mr. Lund was most recently the CEO of Nova Scotia Business Inc. (NSBI), Nova Scotia, Canada’s business development agency,

since its creation in 2001. NSBI has attracted some of the top companies in the world including IBM, BlackBerry, CITCO, Marsh and Lockheed Martin.

NSBI exceeded its goal of helping generate $800 million in direct client payroll during its most recent 5-year strategic plan period 2007 - 2012. During this time, NSBI achieved $1.2 billion in direct client payroll and generated a 43% return on investment for Nova Scotia under Mr. Lund’s leadership.

Before joining NSBI, Stephen was Vice-President of Working Ventures Canadian Fund, Canada’s largest national venture capital where he led investing activities for the fund in Atlantic Canada.

Having previously worked in Bermuda, Mr. Lund had been with the Bank of Bermuda and Butterfield.

In 2011, he was inducted into Atlantic Business Magazine’s prestigious Top 50 CEO Hall of Fame, and was recognized by the Dublin-based publication, Financial Centres International, as one of the top 500 most influential people in financial centres worldwide.

Bermuda Insurance Update spoke to Mr. Lund about the future for Bermuda business.

Are you able to identify the way forward for Bermuda in international business?

• We need to build a business development culture, here on the Island. BDA, as a business development organization, will lead the way

through proactive, targeted, one-on-one meetings with high-level decision makers, but it is important that Bermuda understand it is the responsibility of everyone to sell the jurisdiction.

• We also need to ensure that clients, both prospective and existing, receive first class service on the Island from initial contact to the point in which they establish a presence on the Island. As such, we launched the Concierge Service in order to make doing business on the Island easier and more efficient. However, it must be recognized that growing international business on the Island takes everyone from the taxi drivers to the accountants.

• We also need to leverage Bermuda’s connections globally. BDA has launched a Bermuda Alumni Group which will help to drive business development initiatives globally focused on engaging senior executives; providing intelligence on business opportunities; and facilitating key connections within a vast network of high level executives and decision makers across industry sectors.

Stephen Lund

Chief Executive Officer

Bermuda Business

Development Agency

BERMUDA BUSINESS DEVELOPMENT AGENCY (BDA), A NEW PUBLIC-PRIVATE SECTOR PARTNERSHIP THAT IS FOCUSED ON GROWING BERMUDA’S ECONOMY,SUPPORTING INTERNATIONAL BUSINESS AND CREATINGJOBS, HAS BEEN LAUNCHED IN BERMUDA WITH THEBACKING OF THE BERMUDA GOVERNMENT.

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Should Bermuda change its focus in services offered or perhaps expand the types of international business we use to obtain foreign exchange?

• Bermuda has had success in many areas and we need to continue to support those industries that distinguish Bermuda as a premier financial center; most notably, Bermuda is recognized as the oldest and largest captive domicile with direct access to commercial insurance and reinsurance capacity. Bermuda’s global dominance in this space is most apparent when looking at the 2005 hurricanes Katrina, Rita and Wilma; Bermuda’s reinsurers paid nearly 30% of the insured losses.

• Bermuda is also home to a breadth of high caliber, internationally trained and experienced professionals in legal, fund administration, banking, audit, insurance, telecommunications, trusts, and wealth management. We need to build on this expertise and pursue diversified business lines. Bermuda has a history of entrepreneurship and innovation; we need to continue along those lines and source opportunities in new sectors and regions. A prime example of Bermuda’s innovative spirit can be seen in the ILS space, with over $9 billion of Insurance Link Securities listed on the Bermuda Stock Exchange and the formation of 29 SPIs in 2013.

What is the state of Bermuda’s reputation internationally and how can it be improved?

• Bermuda was the first offshore jurisdiction to be placed on the OECD’s white list and applies sensible supervision where necessary. Throughout the decades, businesses have benefited from operating in Bermuda because of the concentration of intellectual capital, a legal system based on the English common law system and its reputation as an innovative insurance and risk management centre. Furthermore, Bermuda is unrivaled with a high standard of living and breath-taking beauty.

• However, I think the more important question to ask is whether or not people are aware of Bermuda’s reputation. In speaking with high level executives in major cities around the globe, generally, the feedback I receive is that they have not heard from Bermuda, so we need to be more assertive in our messaging and raise awareness that Bermuda is the smart choice for doing business.

Are you identifying new strategies for the selling of Bermuda and market growth?

• We are developing and prioritizing go-to-market strategies across sectors working with our key partners to identify opportunities in priority areas. BDA’s strategy is geared towards sustaining existing international business; developing new international business and industries; engaging in product driven marketing; and building a strong public and private partnership. Key to our success is in creating a more friendly business environment by helping clients navigate through the relevant Ministries, the Bermuda Monetary Authority and facilitating contact with local service providers including professional services, realtors and human resource advisors.

• BDA also formed 13 industry focus groups that meet regularly to generate and submit business development ideas that will help shape BDA’s strategy and align the organization’s mandate with business development initiatives for multiple industries focusing in key regions. These working groups not only receive logistical and administrative support from the BDA, but benefit from the coordinated efforts of legal, governmental, regulatory and marketing bodies.

Where does the promotion of the Island’s international insurance industry fit into BDA’s strategy?

• Bermuda’s insurance industry has a very strong reputation internationally with a depth of expertise. It is our job to work with industry partners to assist them in growing and enhancing their industry. We have a focus group dedicated to captives, reinsurance, insurance, ILS and brokers. We continue to listen to them as they identify new commercial needs or opportunities. Instrumental to the success of our strategy is our engagement with the market. It is through their expertise that we will be more proactive, targeted and responsive to market changes.

CSI Bermuda formed to XLBERMUDA SHORTS

International underwriter of specialty insurance and reinsurance products, Argo Group International Holdings, Ltd. placed a series of three catastrophe bonds providing $172 million of protection to

its insurance and reinsurance subsidiaries through Loma Re Insurance (Bermuda) Ltd.

Coverage provided through the Loma bond program began January 1, and runs for a period of four years, protecting Argo Group’s participating US insurance units, Argo Re, and Lloyd’s Syndicate 1200 against US hurricanes, earthquakes and convective storms and Canadian earthquakes.

Argo Group is one of the first in the catastrophe bond market to offer a product with an annual aggregate loss calculation which combines an indemnity trigger mechanism for traditional insurance business with an index-based trigger mechanism for reinsurance business.

This issuance continues Argo Group’s participation in the insurance linked securities market. While providing reinsurance protection from the frequency of catastrophe losses, participation in the ILS market is also expected to position Argo Group to continue to capitalize on market opportunities, by efficiently replacing capital otherwise needed to support the risk of frequent and sizable events.

Argo Group President and Chief Executive Officer Mark E. Watson III said, “We were pleased to expand our participation in the ILS market as a key part of our catastrophe risk management program. The aggregate coverage and term of the Loma Re protection adds attractive stability to Argo’s financial results.”

Argo launches cat bonds

Mark Watson

President and CEO

Argo Group

2014 Volume 1

After administering more than a thousand examinations in 2013, Bermuda’s school for insurance studies intends to be even more useful to the Island’s insurance industry in 2014.

Bermuda Insurance Institute (BII) CEO, Dawnnelle Walker said, “The insurance industry in Bermuda supports and encourages professional development and their employees are focused on professional excellence.

“Over 140 people received 170 designations in the year to September 2013 through the BII, which administered more than 1100 exams within the year.

“But we also presented the Wharton leadership program with 25 participants, almost all of whom were from the industry.”

The BII, in partnership with the Wharton School of Business, provided a world class Leadership Development program, which began in the first quarter of 2013.

The program was the result of feedback from the BII’s member companies that a superior Bermuda-based business leadership program

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Latest news from The World’s Risk Capital8

was vital to ensure the continued growth of high potential individuals in the Bermuda market.

It was designed for those selected by their companies as future leaders; executives who want to improve their leadership skills and ability to influence; and high potential individuals that represent diverse business functions, companies and industries.

But the insurance school – on a mission to provide world class assessment, training, and development - also has new plans for 2014.

They are about to move into new accommodations which will provide more classroom and office space to accommodate the growing needs of the school.

Ms Walker noted that the BII has extended the registration window for examinations; increased opportunities for persons to sit exams; and, counselled over 70 people and helped them to make decisions about examination paths and courses to take.

She said, “We have given bursaries to individuals who wish to obtain designations; provided a variety of seminars on topics relevant to the industry; and, created a new website (www.bii.bm) designed to be relevant, modern, and user friendly.

The BII is a registered charity and educational institution, funded by its insurance industry members. The institute facilitates insurance studies, and insurance-related studies, organises discussion of industry matters and other interaction among industry participants.

A-Grade for insurance school

Dawnnelle Walker

CEO

Bermuda

Insurance Institute

Seminar hears of strong incorporations

Bermuda’s captive sector is ahead of the game in securing the interest of Latin American companies and Canadian interest is rallying. But the Bermuda market must continue to innovate to seize opportunities to attract new business and grow its leadership position in the captive industry.

Macro-economic, technological, political and regulatory dynamics continue to impact captives, but through dislocation, comes opportunity.

These were some of the views of Bermuda’s captive industry leaders coming out of PwC Bermuda’s 6th Annual Captive Update Seminar on GAAP, tax and regulatory matters for the Island’s captive insurance sector.

“Latin America is growing and we are ahead of the game in positioning Bermuda with local rules and regulations,” said David Gibbons, Director, Captive Insurance, PwC Bermuda.

“Canadian interest is also rallying, and we are working hard to crystallise opportunities and attract new companies to the domicile. And in spite of a shifting global tax environment, the US captive model works well and presents further opportunity.”

Mr. Gibbons continued: “For captives professionals, the blossoming ILS market provides for portability of skills typically found in the captives sector. In all of these areas we must continue to be agile, proactive and innovative to attract new business and keep our existing base strong.”

Arthur Wightman, Insurance Leader, PwC Bermuda, added: “Despite the global economic malaise, Bermuda’s captive industry continues to demonstrate success. Incorporations are strong and industry leaders are increasingly agile in attracting business to the Island, and affirming Bermuda’s leading value proposition.”

More than 100 attendees at the seminar on Monday, January 16 heard that 2013 is expected to see an increase in the number of insurance company formations in Bermuda.

As of the end of November, there were 71 new insurance company registrations, said Leslie Robinson, Assistant Director, Department of Licensing & Authorisations, Bermuda Monetary Authority.

The regulator said that the Authority’s Assessment and Licensing Committee meetings had an unusually large number of applications to consider late in the year, which significantly grew the total number of insurance campany registrations for the 2013 year.

David Gibbons

Director, Captive

Insurance

PwC Bermuda

Leslie Robinson

Assistant Director,

Licensing

Bermuda Monetary

Authority

Eduardo Fox

Corporate Commercial

& Trust Manager

Appleby

Arthur Wightman

Insurance Leader

PwC Bermuda

The news that Bermuda won conditional qualified jurisdiction status from US regulators has been greeted with warm market applause for the Bermuda Monetary Authority (BMA).

Bermuda, Germany, the United Kingdom and Switzerland will all await a further review toward confirmation this year by the National Association of Insurance Commissioners (NAIC).

But the Association of Bermuda Insurers and Reinsurers told the Bermuda Insurance Update that it showed noteworthy leadership by both US and Bermuda regulators.

ABIR President and Executive Director Brad Kading said, “The regulatory recognition agreement agreed to by the US NAIC with the Bermuda Monetary Authority is quite significant. It is a sign of things to come as the BMA demonstrates its insurance group regulatory leadership, robust prudential supervision requirements, compliance with international standards and relevance to global insurance markets.

“ABIR applauds the work of the BMA in gaining this recognition; and supports the work of the NAIC to implement its reinsurance regulatory modernization framework.”

Once confirmed, the development will reduce reinsurance collateral requirements for reinsurers already approved by established regulatory authorities.

9

NAIC OK Bermuda for Model Law

2014 Volume 1

The conditional approval by the US authorities effective 1st January 2014, came as the NAIC sought a process to evaluate regulatory frameworks outside the US, with a view toward developing and maintaining a list of qualified jurisdictions.

Approval under the NAIC Process means that reinsurers licensed and domiciled in Bermuda will be eligible to be certified for reduced reinsurance collateral requirements under the NAIC’s Credit for Reinsurance Model Law.

The “Model Law” addressed how state insurance commissioners would approve reinsurance companies based outside the United States for posting lower collateral than the 100 percent that had previously been required by most states.

Commenting on the NAIC’s decision, Jeremy Cox, CEO of the Authority said, “We are very pleased with the outcome of this initial step in the NAIC’s Process.

“Having this status is highly relevant to the Bermuda market, in terms of potentially facilitating efficiencies in the cross-border operations of Bermuda reinsurance with the US insurance market.

“We look forward to working with the NAIC to complete the process in the coming months.”

Despite facing increased competition and other factors including the low interest rate environment, Ms Robinson said: “Bermuda continues to hold its own and maintains its position as captive leader. It’s not just about numbers though, it’s about what Bermuda offers in terms of depth of service, provider experience and expertise; its practical regulatory environment, efficient licensing process and proximity to North America and Europe. Captives also have access to a robust insurance and reinsurance market.”

Eduardo Fox, PC/Trusts & Latin America Manager, for Appleby said that tax information exchange agreements (TIEA) with Latin American countries and “advanced negotiations” with others like Chile and Colombia — which had recently excluded Bermuda from a 40-plus list of “tax havens” — helped the Bermuda brand in the region.

And Colm Homan, Managing Director, Insurance & Reinsurance, PwC Bermuda, praised Bermuda’s new Business Concierge service saying: “A number of clients appreciated it and felt it made them feel very welcome here.”

Mr. Gibbons noted the Canada-Bermuda TIEA has been in place since mid-2011 and added: “Since then there have only been a few formations from Canadian companies. The market for large entities forming captives is generally mature and has a strong foundation in Barbados. But the TIEA levels the playing field with Barbados.

“Combined with Bermuda’s strong infrastructure, economy, and (re)insurance sector, we are in a strong competitive position to grow our Canadian captive presence. A recent Bermuda sponsored event saw renewed interest from bigger players mainly in oil and gas with operations in the US.”

Ms Robinson agreed: “Canada is a good area for us to continue to explore.”

Stephen Lund, CEO of the Bermuda Business Development Agency (BDA) said events such as the recent ILS Convergence 2013 conference in Bermuda were key to attracting new business to the Island.

He stressed that following up with attendees was critical and: “Having the conference here is one part of it, but we have to have the same red carpet experience at the airport and at the hotels.”

Commenting on the state of the reinsurance market, Mr. Gibbons said: “Bermuda continues to be the domicile of choice. The continued rapid growth of ILS has had and will continue to have, a significant impact on the traditional reinsurance market.

“Soft rates in 2012 (despite large losses in 2011) have continued into 2013. These factors, combined with focus on expense ratios and weak investment returns, challenge traditional reinsurers to find new areas for growth.

“Various options exist, including entering the ILS space themselves, increasing retentions, seeking new or more profitable risks and looking to emerging markets such as Latin America, where insurance market penetration remains less than 1/3 that of more advanced economies.”

In providing a global overview, Mr. Gibbons said mergers of global companies continue to grow year on year in 2013 (up approximately 6 percent on 2012 and over 40 percent higher than 2011) with an associated impact on their captives.

He said: “Companies are holding more cash now than they ever have in the past – a primary driver being uncertainty in the markets. As uncertainty eases, that cash will need to be deployed. This could have impact both on the capital flows to Bermuda generally, and the appetite to form captives.”

Continued on page 15 ›

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Latest news from The World’s Risk Capital10

US agrees Bermuda is not a tax haven

It is one of the most substantial US acknowledgements yet that distances the Island from such labels.

The term “tax haven” became more widely used in the latter part of the last century, as globalisation and increased capital mobility slowed the growth of tax inflows to large countries.

It led to campaigns which vilified small countries which became beneficiaries of the changes in global market forces.

At the FATCA signing, Minister Richards stated: “It is every country’s sovereign right to design or adjust their tax collection system. Bermuda has a responsibility, as a responsible and respected international financial center in the global financial system. It is for us to respect other countries, as it is for other countries to respect our tax system – a system which is over 100 years old. Ours is primarily a consumption-based tax system.”

He further pointed out: “This historic agreement (FATCA) builds upon a rich history of cooperation and friendship Bermuda has had with the United States since the beginning.”

The Organisation for Economic Co-operation and Development (OECD) defines a tax haven as a jurisdiction with no or nominal tax, a lack of

information exchange, a lack of transparency, and no substantial local activities.

Jeffrey Owens of the OECD’s Centre for Tax Policy and Administration explained some years ago that “Low tax alone does not classify any place as a tax haven. The key thing is to have effective exchange of information.”

Bermuda has signed Tax Information Exchange Agreements (TIEAs) with a large number of countries (see page 2) and was “white-listed” by the OECD in 2009, which cited the Island’s cooperation in tax matters.

At the time, the OECD required a minimum of 12 TIEAs for “white-listed” countries, but also put non-cooperative countries on a “black-list” of “tax havens” and created an in-between category of “grey-listed” countries.

The OECD is an international economic organisation of 34 countries founded in 1961 to stimulate economic progress and world trade. It is a forum for countries committed to democracy and the market economy, providing a platform to compare policy experiences, seek answers to common problems, identify good practices and co-ordinate domestic and international policies of its members.

Continued from cover

A new Bermuda broker/market-inspired corporate healthcare insurance product has been designed that capitalizes on the use of existing Bermuda policy wording.

The new stand-alone integrated occurrence product called Catastrophic Integrated Occurrence or CAT IO is promoted by XL Insurance (Bermuda) Ltd (XLIB) and Aon Risk Solutions, the global risk management business of Aon plc.

With up to $50 million of capacity, this product is designed to provide catastrophe coverage in the event of a large batch (integrated occurrence) event. It is the result of collaboration between the health care practices of Aon and XLIB in an effort to address the needs of health care industry clients.

By basing CAT IO on the Bermuda XL 004 form, which has a proven history with respect to integrated occurrence claims, the new product will provide risk managers within the health care industry additional coverage for catastrophic claims.

Senior Vice President with Aon Risk Solutions’ Broking Center in Bermuda Annie Sousa pointed out: “There have been an extraordinary number of batch incidents over the past few years in the health care industry due to clinical integration, which have come to light because of greater transparency and improved reporting mechanisms.

“This product, as a continuous policy, will allow a client to group together a series of related incidents, which often extend over considerable periods of time, into a single integrated occurrence, subject to one self-insured retention, helping to insure the health care system from a catastrophic batch event.”

Wesly Guiteau, senior vice president, Underwriting Manager, Healthcare at XLIB believes that XL-004 Policy Form offers a much broader level of batch coverage than the typical Claims Made and Captive Forms utilized for health care insurance programs.

Carla Greaves, XLIB senior vice president, Chief Excess Casualty Underwriter noted: “The XL-004 Policy Form Integrated Occurrence feature has been tested and has proven to respond effectively to health care risks. In fact, 70 percent of health care claims paid by XLIB have been on the basis of integrated occurrences.”

There are various options for integrating CAT IO into a casualty insurance or reinsurance program:

•  Top up: CAT IO sits on top of the current program, providing pure catastrophe cover in the event of a large batch claim.

•  Difference in Condition: Excess and DIC of current tower, the integrated occurrence language will drop down DIC to the required level to pick up coverage where the underlying batch coverage in place does not.

•  WRAP: Will sit alongside current single occurrence program and wrap the selected layer of coverage which does not contain any coverage for integrated occurrences

•  Cloud Cover: A single limit sitting anywhere above the current hospital and physician professional liability program tower as pure catastrophe cover. This product does not need to be placed directly excess of the current program, but rather, can sit at whatever excess attachment point that meets with the specific client’s needs and comfort level.

Innovative healthcare policy Annie SousaSenior Vice President

Aon Risk Solutions

Carla GreavesSenior Vice President, Chief Excess Casualty

XL Insurance (Bermuda) Ltd

Wesly GuiteauSenior Vice President, Underwriting Manager, Healthcare

XL Insurance (Bermuda) Ltd

11

2014 Volume 1

INSURANCE MARKET CONFERENCE SCHEDULE

JANUARY 29TH – 31ST

World Captive ForumTurnberry Isle Miami Resort Aventura, Floridaworldcaptiveforum.com

MARCH 4TH – 5TH

SIFMA Insurance and Risk Linked Securities ConferenceGrand Hyatt Hotel New York, NYsifma.org/irls2014

APRIL 27TH – 30TH

Risk & Insurance Management Society, Inc. (RIMS) 2014 Annual Conference & ExhibitionDenver, Coloradorims.org

JUNE 2ND – 4TH

Bermuda Captive ConferenceFairmont Southampton Southampton, Bermudabermudacaptive.bm

JUNE 24TH - 25TH

Insurance Day Summit BermudaFairmont Hamilton Princess Pembroke, Bermudainsurancedaysummit.com/bermuda

JULY 7TH - 8TH

LatAm Insurance Review (Multi-Latina) Risk Management SummitCartagena, Colombiainsurancelatam.com/events

OCTOBER 26TH – 29TH

American Society for Healthcare Risk Management (ASHRM) ConferenceMarriott & Hilton Anaheim Anaheim, Californiaashrm.org

THE OFFICIAL JOURNAL OF THE BERMUDA INSURANCE INDUSTRY

Latest news from The World’s Risk Capital12

Finance Minister E.T. “Bob” Richards shares a moment with the UK’s Secretary to the Exchequer, David Gauke, after the UK/Bermuda FATCA signing.

Mr. Richards stated: “The signing of IGA Model 2 is in keeping with the Government’s international tax strategy which is to demonstrate our commitment to tax transparency and automatic exchange of information and ensure Bermuda’s reputation as the premier international financial jurisdiction in which to do business.”

The significance of choosing IGA Model 2 versus IGA Model 1 means all Bermuda’s financial institutions must identify all UK residents with interests in Bermuda and automatically report them to HM Treasury on an annual basis. HM Treasury will receive the information on those residents in bulk form and will be able to issue group requests for information in relation to recalcitrant clients of Bermuda financial institutions.

Recalcitrant clients are persons who refuse consent to allow the financial institution to automatically share their information.

Should HM Treasury initiate investigations on a person with respect to possible tax evasion, a request for information can be made under the UK – Bermuda Tax Information Exchange Agreement.

Utilizing this method of automatic exchange of information guarantees the rights, safeguards, and confidentiality of the information received in regards to those persons.

FATCA is rapidly becoming the global standard in the effort to curtail offshore tax evasion. Over the same period that Bermuda was signing these agreements with the UK and the US, three UK Crown Dependencies – Jersey, Guernsey, and the Isle of Man – together with Malta and the Netherlands also signed various agreements with the United States to implement FATCA.

“FATCA continues to gather momentum as we work with partners worldwide to combat offshore tax evasion,” said Mr. Stack. “This large number of signings in one week alone sends a strong signal to tax evaders everywhere: international support for FATCA is growing.”

FATCA seeks to obtain information on accounts held by US taxpayers in other countries. It requires US financial institutions to withhold a portion of certain payments made to foreign financial institutions (FFIs) who do not agree to identify and report information on US account holders.

Governments have the option of permitting their FFIs to enter into agreements directly with the IRS to comply with FATCA under US Treasury Regulations or to implement FATCA by entering into one of two alternative Model IGAs with the United States.

Under Bermuda’s Model 2 agreement, the Island will direct and legally enable FFIs in Bermuda to register with the IRS and report the information required by FATCA about consenting US accounts directly to the IRS. This requirement is supplemented by government-to-government exchange of information regarding certain pre-existing, non-consenting accounts on request.

Malta, the Netherlands, and each of the Crown Dependencies entered into Model 1A agreements. Under these agreements, FFIs will report the information required under FATCA about US accounts to their home governments, which in turn will report the information to the IRS.

Representatives from the US and the UK governments have negotiated and signed specialty tax agreements with Bermuda officials related to the Foreign Account Tax Compliance Act (FATCA) in recent weeks.

They have also indicated that Bermuda is playing a leading role in tax transparency, and such agreements underscore growing international cooperation to end tax evasion.

One agreement was signed by US Consul General to Bermuda Robert Settje and Finance Minister E.T. “Bob” Richards.

A statement from the US Consulate General in Bermuda said, “The United States and Bermuda have a longstanding and close relationship that has endured for more than 400 years. That friendship extends to mutual assistance in tax matters and includes a desire to improve international tax compliance.”

It further pointed out that the most recent agreement builds on a near 25-year-old US/Bermuda bilateral tax information exchange agreement signed in the 1980s.

Bermuda officials say these agreements emphasize the Island’s commitment to international tax cooperation to fight against cross-border abuse of tax laws.

The US Department of the Treasury, in fact, also signed bilateral agreements with five additional jurisdictions in December to implement information reporting and withholding tax provisions.

The measures target non-compliance by US taxpayers using foreign accounts. With these most recent agreements, the United States has signed 18 FATCA intergovernmental agreements (IGAs), has 11 agreements in substance, and is engaged in related discussions with other jurisdictions.

At the end of the most recent US/Bermuda negotiations, US Treasury official Mr. Robert Stack, the Deputy Assistant Secretary for International Tax Affairs, said: “We welcome the conclusion of negotiations with Bermuda on a Model 2 Intergovernmental Agreement to implement FATCA and join our efforts to curtail tax evasion.

“We are particularly pleased to build upon our decades-old Tax Information Exchange Agreement relationship with Bermuda and the recent Mutual Legal Assistance Treaty.”

He also said: “We appreciate Bermuda’s role as a leader in global tax transparency as well as their role serving alongside the US on the Steering Group of the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes.”

Meanwhile, the UK’s Secretary to the Exchequer, David Gauke, together with Minister Richards, signed the UK/Bermuda FATCA Intergovernmental Model 2 Agreement, “IGA Model 2”.

FATCA accords new tax regime

Finance Minister E.T. “Bob” Richards and US Consul General to Bermuda Robert Settje sign the FATCA accord to promote transparency on tax matters.

13

2014 Volume 1

These agreements are reciprocal, meaning that the United States will also provide similar tax information to these governments regarding individuals and entities from their jurisdictions with accounts in the United States.

Minister Richards discussed the long cooperation between the USA and Bermuda governments: “Our first ‘agreement’, albeit quite unofficial, was made by Bermudians for the purpose of protecting cross border trade relations with our American neighbors, the agreement made in 1775, by some Bermudian businessmen to provide gunpowder to General George Washington of the Continental Congress in his time of need.”

He also referenced the “Destroyers for Bases Agreement” in 1940 between President Roosevelt and Prime Minister Churchill that saw Bermudians give up land for two US military bases - a US Air Force base and a US Naval base at opposite ends of the Island.

Mr. Richards said the two bases, which were closed in the 1990’s, were key contributors to Bermuda’s prosperity.

He added, “To underscore the importance of our friendship, the US Congress in the early 1980s moved to recognize Bermuda as a friendly nation when agreeing to extend to Bermuda the Caribbean Basin Initiative which laid the foundation for the 1986 tax treaty with the US to be signed.

“The 1986 Tax Treaty was built upon that long established friendship and was the first tax agreement between our countries, signed on the 11th of July 1986, by Bermuda’s then Premier the Hon. Sir John W. Swan and John C. Whitehead, the then US Deputy Secretary of State in President Ronald Reagan’s administration under the Secretary of State George Shultz.

“The 1986 tax treaty facilitated Bermuda developing the twin pillars of our economy you see today, international business and tourism.”

Owners of captive insurance companies across all domiciles face increasing challenges in ensuring the success of their self-insuring entities.

Because of this, the Bermuda market will place more emphasis on building an association dedicated to the needs of captive owners.

The new Vice President of the Bermuda Captive Owners Association (BCOA) Peter Willitts said that resources to make that happen have been provided by the Bermuda Insurance Management Association – the umbrella

association for the Island’s captive managers - and the Bermuda Captive Conference.

He said, “Running a captive is becoming progressively more complicated because of increased legislation and regulation, no matter the domicile in which it is sited. This is coupled with the fact that as the market hardens, more corporations and associations are looking to captive insurance solutions. We have to be sure that owners have every opportunity to be heard on a number of fronts.

“There are more owners, and they will need to have far more of a voice in the market. So it is a good time to expand the activities of the BCOA

Mr. Willitts is the President of the Hamilton-based captive and insurance company manager, Liberty Management (Bermuda) Ltd.

He joins BCOA President William J. Montanez, the Director, Risk Management of the Ace Hardware Corporation in this association initiative.

Mr. Montanez said, “There is an increasing trend to determine how a company’s employee benefit programs can benefit from the captive experience.

“The employee benefits problem is about understanding and analyzing what is driving the claims and finding solutions to these issues.

“The potential captive solution is aggregating the claims thus gaining familiarity and diversifying existing risk portfolio.”

Mr. Willitts said, “Bermuda is a one-stop shop with large insurance and reinsurance markets, together with the leading captive market. We have fronting here and very specific captive legislation which is probably unmatched anywhere, in terms of the various categories and the reinsurance behind it.

“The opportunity for risk managers to take advantage of all of this should mean they are an active constituent in what is going on here in Bermuda.”

“We are surveying hundreds of owners with regard to the Conference and compiling detailed information on the various lines of business on which they are focussed. We believe we can unite risk managers who have similar interests, to share knowledge with one another.

“We are also working on a loyalty program with the Chamber of Commerce, to help reduce costs for clients who visit the Island for business meetings.”

“It would provide more participation by our clients – the captive owners – in terms of how we run the Bermuda Captive Conference, but also as a voice in Bermuda in terms of what they want and need - a body to represent their interests generally.”

This will mean an increased participation in the direction of the Bermuda Captive Conference in many ways, including an even more focussed approach to an agenda that improves how it serves the needs of the owners.

The initiative follows an extremely successful Conference in June, one of the youngest events on the global captive calendar.

The BCOA will directly provide input into the planning of the BCC, with executive board representatives on the BCC’s main committee, as well as the marketing and education sub-committees.

Mr. Willitts said, “These are the committees that are the drivers of the Conference. Risk Managers are underscoring the need for more education as the regulatory climate and financial services landscape bring greater complexity.”

Captive challenges William Montanez

President

Bermuda Captive

Owners Association

Peter Willitts

Vice President

Bermuda Captive

Owners Association

A veteran Bermuda insurance executive began the new year becoming responsible for supervising one of the world’s largest insurance markets.

Chartered Insurer and Chartered Accountant, Andrew Gibbs, has been appointed Director, Supervision (Insurance) for the Bermuda Monetary Authority (BMA), reporting to Craig Swan, the BMA’s Managing Director, Supervision.

Mr. Gibbs has 27 years of experience in the Bermuda market. For the past five years he has held positions at Validus Holdings as Executive Vice President, Head of Internal Audit following a period as the company’s Group Controller.

Prior to that, he spent 12 years with the ACE Group of Companies as

Chief Financial Officer of ACE Global Re as well as Chief Financial & Operating Officer of ACE Bermuda. Mr. Gibbs was also with Ernst & Young, Bermuda from 1986 to 1996, where he became the lead insurance audit partner and led a technology consulting department.

Mr. Gibbs said, “I am pleased to be joining the Authority at such a pivotal time for global regulatory change in the insurance and reinsurance industry.

“I am looking forward to working with my colleagues at the Authority as we continue to build out the regulations here in Bermuda, as well as ensuring that our practical, risk-based approach to regulation continues to earn full credit in relation to global equivalency efforts.”

Commenting on the appointment, Mr. Swan said, “We are pleased that Andy has joined the Authority as our new Director, Supervision (Insurance) and will be responsible for the supervision of Bermuda’s insurers and insurance groups.

“The addition of quality hires like Andy assists the Authority in its mission to protect and enhance Bermuda’s reputation and position as a leading international financial centre.

“We are delighted to attract staff with decades of business experience and technical expertise, such as Andy, in order to continue the effective implementation of a forward-looking risk-based supervisory framework that addresses the unique characteristics of Bermuda’s financial sector.”

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Latest news from The World’s Risk Capital14

The Bermuda Stock Exchange (BSX) concluded an impressive calendar year with 665 listed securities and a market capitalization of nearly a half a trillion dollars.

The Exchange was buoyed by record listings of Insurance Linked Securities (ILS) the value of which grew to nearly $10 billion, and, the successful upgrade of the Exchange’s trading engine to the NASDAQ’s X-stream platform.

Total ILS listed on the BSX more than doubled in 2013 from 38 to 77 while the value of the securities grew 67 percent from $5.81 billion to $9.71billion. Today, the BSX has close to half of the ILS and cat bond market listed on its exchange.

There were 19 new collective investment vehicles, 12 international equities and 4 fixed income securities listed along with 13 subsequent issues undertaken by existing listed issuers.

The total market capitalization of the BSX at year’s end (excluding collective investment vehicle listings) was $428 billion of which some $1.69 billion represented the domestic market.

Total trading volume was 10.2 million shares ($50.1 million) compared to 12.7 million shares ($38 million) for 2012.

Bermuda has become the market of choice for cat bonds and ILS business and there are strong indications of continued growth.

Steve Evans at Artemis.bm said the growth seen at the BSX in terms of listed cat bonds, ILS and insurance-linked funds this past year has been quite staggering.

Artemis is the longest running news website devoted to the alternative risk transfer, catastrophe

bond & ILS, non-traditional reinsurance and weather risk management markets.

Mr. Evans said that 20 of the 32 catastrophe bond or ILS transactions listed in the Artemis Deal Directory were issued using a Bermuda domiciled Special Purpose Insurer (SPI).

He said, “That is almost 63 percent of the transactions issued.

“The completion of the latest deal has taken the amount of insurance-linked listings on the Bermuda Stock Exchange to over $9 billion for the first time.”

BSX President and CEO Greg Wojciechowski said, “This development clearly underscores our position as a significant capital market supporter of the ILS/ART asset class.

“This would not have been possible without so many contributing factors, among them Bermuda’s position as the logical location for the convergence of the insurance and capital markets.

“Bermuda’s depth and breadth of experience in the global reinsurance industry lends itself to supporting the market as trends re-shape the market’s traditional landscape.”

Cat bonds boost BSX New year’s resolution

Steve Evans

Founder and Owner

Artemis.bm

Greg Wojciechowski

President and CEO

Bermuda

Stock Exchange

Andrew GibbsDirector, Supervision (Insurance)

Bermuda Monetary Authority

Catlin Insurance Company Ltd. of Bermuda believes their new formation of a Singapore branch will help expand their product offering throughout the Pacific Rim, whileunderscoring Catlin’s firm commitment to regional clients.

The international specialty property/casualty insurer and reinsurer said the new branch is writing specialty lines of direct insurance in Singapore and reinsurance throughout the Asia-Pacific region.

It was established following the grant of a direct license in December by the Monetary Authority of Singapore.

Catlin has been underwriting local and regional business from its Singapore office since 1999 on behalf of Catlin’s syndicate at Lloyd’s of London. The establishment of CICL (SG Branch) allows Catlin Singapore to write business on behalf of either the new branch or the Lloyd’s Syndicate, depending on broker or client preference.

BERMUDA SHORTS

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2014 Volume 1

cost-of-capital, and this will continue as more capital comes into the space.

Mr. Carne foresees a greater range and innovation of products, as new territories, new risks and perils come to market and more ILS funds become involved.

He said, “A greater acceptance of non-modeled risks by investors may be needed in order for market to grow. And factors that could change the current trend include a steepening of the yield curve; or a claims dispute; fraud or anything that undermines investor confidence in the asset class.

“Most sophisticated investors fully understand the nature of the risks they are taking and that they could lose perhaps all of their invested capital in an instrument after a significant event. However, pension funds and other like-minded investors look to be in it for the long term and will not be scared away by a significant loss event.”

Meanwhile, the BMA report for the third quarter of 2013, also found that:

Bermuda has become a leading jurisdiction for the creation, listing and servicing of ILS, accounting for more than 62 percent of global issuance during the quarter.

The outstanding amount of ILS issued in Bermuda thus far represents more than 40 percent of the world-wide stock of ILS.

Bermuda is also host to foreign ILS listings, which augment the depth of the secondary market.

Growth in ILS business expectedThe quantum growth of Bermuda involvement in Insurance Linked Securities (ILS) has prompted the Island’s financial regulators to examine Bermuda’s ILS activity in the context of global developments, and provide performance indicators for primary and secondary ILS markets.

A first report came on the heels of an ILS panel at the Bermuda Monetary Authority (BMA)’s International Regulatory Forum, where Lixin Zeng, CEO of AlphaCat Managers, the third-party reinsurance capital management

unit of Bermuda-based insurance and reinsurance group Validus Holdings, was asked why Bermuda, specifically, was attractive as an ILS domicile.

Mr. Zeng said, “Bermuda offers what we like to call the right-sizing of regulation, which is establishing an optimal balance between investor opportunity and ensuring the financial security and integrity of the firms you regulate.

“Bermuda has done the best job of achieving the optimal balance for this, compared to other financial regulatory regimes of the world.”

The BMA report states that Bermuda has emerged as a leader in the global ILS market only four years after implementing a specific regulatory framework to facilitate the formation of such instruments through a new license class for insurers.

The report provides extensive data on the specialty business, but also explained the benefits and risks of ILS. The BMA’s in-house macro-prudential surveillance unit will conduct analysis and produce similar reports on a quarterly basis.

Bermuda went from being a non-player in ILS deals in 2009 to being the dominant jurisdiction by 2013. It was an outstanding feature in the substantial growth in the use of the product as an alternative to traditional insurance and reinsurance products.

Meanwhile, Insurance Partner at KPMG Bermuda, Jason Carne, agrees that the growth in the use of insurance linked securities globally and for Bermuda is closer to the earlier stages of development.

He said, “Continued growth can definitely be expected. A recent Aon Benfield report talked about the next $100 billion in reinsurance capital in the next five years with significant inflows from ILS.”

Aon Benfield’s examination said the total size of the ILS and alternative reinsurance capital market could reach $144 billion in five years.

The next $100 billion of alternative capital is going to be transformative for reinsurance market dynamics and the overall insurance landscape, according to Aon Benfield.

A statement said that both insurers and reinsurers will benefit from the transformative period in the market’s history that began with the first $44 billion of alternative capital that entered the reinsurance market over the last decade or so, as the next $100 billion finds its way into reinsurance capital and underwriting capacity.

Aon Benfield considers the reduction of reinsurers’ cost-of-capital as a key change in the reinsurance market. This is a factor we already see today, as traditional reinsurers come to terms with insurance-linked securities and collateralized competitors which have a considerably lower

Lixin Zeng

Chief Executive

Officer

AlphaCat Managers

Jason Carne

Insurance Partner

KPMG Bermuda

In September, the Authority was the first insurance supervisor to agree to participate in an expedited review under the NAIC Process. The full review of the four approved jurisdictions will take place this year.

Through the NAIC, state insurance regulators establish standards and best practices, conduct peer review, and coordinate their regulatory oversight NAIC staff supports these efforts and represents the collective views of state regulators domestically and internationally. NAIC members, together with the central resources of the NAIC, form the national system of state-based insurance regulation in the US.

NAIC OK Bermuda

for Model LawContinued from page 9

THE OFFICIAL JOURNAL OF THE BERMUDA INSURANCE INDUSTRY

Latest news from The World’s Risk Capital16

ABIR members and other Bermuda-based (re)insurers:

• Generate income from 150 countries

• Write 20% of the broker-placed European property catastrophe reinsurance

• Are expected to ultimately pay 62% of the claims for the UK’s largest peacetime fire and explosion-the Buncefield oil terminal fires of 2005

• Provide 26% of the capacity for Lloyds of Londonii

• Write 14% of aggregate global reinsurance premium

• Include 15 of the top 40 reinsurers in the world

• Supply 40% of the US and EU broker-placed property catastrophe reinsurance market

ABIR members and other Bermuda (re)insurers are large global property catastrophe (re)insurers as demonstrated by recent events. Bermuda (re)insurers covered:

• 50% of the reported losses for the 2012 Costa Concordia cruise liner sinking

• 16% of the reported liabilities for United States’ 2012 Hurricane Sandy

• 29% of the reported liabilities for the international reinsured share of the 2011 Japanese earthquake.

• 37% of the reported liabilities for Europe’s 2010 Windstorm Xynthia

• 38% of the reported liabilities for Chile’s 2010 earthquake

• 51% of the reported liabilities for New Zealand’s 2010 earthquake

• 22% of the theoretical $1 Billion market loss for the 2009 Air France crash

DID YOU KNOW? Facts about the Bermuda Insurance Market

The Association of Bermuda Insurers and Reinsurers (ABIR) publishes a timely understanding of the impact of its 21 member companies in this useful fact sheet.

21 Bermuda domiciled insurers and reinsurers

• 97% of gross premium written by companies traded on the New York or London stock exchanges (86% of premium written by US SEC registrants)i

• Wrote $66.4 billion in global gross written premium (CY 2012)

• Aggregate global capital over $95 billion (CY 2012)

• Employ nearly 16,000 in the US, nearly 1,600 in Bermuda, more than 8,600 in Europe and nearly 35,000 worldwide (CY 2012)

i Based on global gross written premium ABIR Underwriting Reports

ii 2013 capacity, managing agents and syndicates, Bermuda ultimate holding company, Lloyds’ data, ABIR analysis

ABIR members and other Bermuda (re)insurers play an important role in the US economy:

• Bermuda’s reinsurers paid nearly 30% of the insured losses from 2005 Hurricanes Katrina, Rita and Wilma

• Bermuda’s reinsurers paid $22 billion to rebuild the US Gulf and Florida coasts from the horrific hurricanes seasons of 2004 and 2005

• Bermuda’s carriers provide more than 60% of the hurricane reinsurance in Florida and Texas.

• Bermuda’s carriers provide up to one third of US crop reinsurance in key states

• Bermuda’s carriers support 25% of the US medical liability insurance and reinsurance market

• Bermuda’s reinsurers contributed $35 Billion between 2001-2012 to U.S. catastrophe losses

Updated October 2013. Statistics compiled from: A.M. Best, Standard and Poor’s, Aon Benfield, Dowling and Partners, Insurance Insider, Bermuda Monetary Authority, ABIR.

About ABIR: The Association of Bermuda Insurers and Reinsurers (ABIR) represents 21 international insurers and reinsurers. With underwriting operations in Bermuda and with operating subsidiaries around the world, these carriers derive business income from over 100 countries globally. ABIR’s mission is to represent the public policy interests of Bermuda’s Class 4 insurers and reinsurers around the world. For more information, please visit: www.abir.bm