Reinsurance can sometimes seem to be a topsy turvey world: a reinsurer with its roots in London that relocated to Bermuda has now announced that it is setting up a new reinsurance company in Switzerland.
The news that Catlin is to set up shop in Zurich has been headlined as a Solvency II story. But is this really a Bermuda story?
The company said in its press release that the formation of Catlin Re Switzerland would allow the Catlin Group to quickly take advantage of favourable opportunities as they arise in the European reinsurance market, including opportunities created as the result of the forthcoming Solvency II regulatory regime.
But is the move further evidence that Bermuda is losing its gloss for global reinsurers? In a convolution that helps Catlin subtly change its focus from Bermuda it will also apply to the Bermuda Monetary Authority to establish a Bermuda-based branch of Catlin Re Switzerland.
The hard reality number for Bermuda is that the number of big name companies taking the emphasis off the island in exchange for European domiciles is on the rise. And no matter how they frame the reasons for leaving, it doesn’t augur well for Bermuda.
Earlier this year Flagstone Re completed its move from Bermuda to Luxembourg. Flagstone’s CEO David Brown said at the time: “Luxembourg is a major financial center known for its stability as well as its financial sophistication, and we believe this move will increase our strategic and capital flexibility while maintaining our operating model and our long-term strategy.”
Didn’t Bermuda used to trade on its stability and financial sophistication?
Similarly, “London” group Amlin recently re-domiciled its legal carrier Amlin Bermuda Limited from Bermuda to Zurich. A little like Catlin, the existing operations of Amlin Bermuda became a Bermuda-based branch of Amlin AG. Amlin said: “We believe that Switzerland provides Amlin with strategic flexibility, a strong professional workforce, a solid legal and regulatory environment and an improved ability to manage our capital.”
Again, doesn’t Bermuda offer that any longer?
Some commentators have pointed out that Bermuda traditionally is a base for reinsurers who write US and international property catastrophe coverage and that European insurers tend to buy from a reinsurer in the same region. Does that explain the migration?
When the two companies most closely identified with US/Bermuda – indeed the two companies that first put Bermuda on the insurance and reinsurance map – decided to relocate their holding company they moved to Europe.
XL Capital Ltd moved its holding company’s domicile from the Cayman Islands to Ireland (and changed its name to XL Group), following a similar redomiciling by competitor Ace Ltd. from Cayman to Switzerland in 2008.
XL chief executive officer Michael McGavick said: “Among other benefits, we believe the proposed move will reduce certain risks that may impact us and offer us the opportunity to reinforce our reputation, which is one of our key assets, and to better support our global business platforms.”
Some people say that it doesn’t matter if there is trend for companies to move their corporate domiciles – George Rivaz CEO of Ariel even suggested it would take the pressure off local resources, reduce the cost of doing business there and allow more local people to be hired.
Now we are getting somewhere: Bermuda is increasingly seen as a challenging place to keep people.
But even if Bermuda can reconcile the problems around resources, housing and staffing, would it survive a possible clampdown on tax havens by US President Barack Obama? One of the factors in choosing Bermuda as a domicile is the freedom from taxes on income, capital goods and dividends.
An insurance company may apply to the Government for (and receive automatically) an undertaking that in the event that taxation is introduced, it will not be applicable to that company until the year 2016.
That promise is unlikely to mean much to the Obama administration.
What’s worrying for Bermuda is that reinsurance companies are not often run by original thinkers. When they see one of their peers act, they will often follow suit. A lot hinges on any changes made to taxation in the US, but my guess is that it is only a matter of time before more companies start getting itchy feet and feel compelled to move – or at least get a European bolt hole ready as some already appear to be doing.