Article by Jan Woloniecki & Rod Attride-Stirling
In 1990, when Jan Woloniecki moved to Bermuda, Margaret Thatcher was prime minister of the United Kingdom, George Bush senior was president of the United States, Mikhail Gorbachov was in charge of something called the Soviet Union. Jan and Rod Attride-Stirling reflect on the growth of the Bermuda reinsurance market and the impact on Bermuda’s legal environment.
A dozen years ago Bermuda was (as it remains today) the leading domicile in the world for captive insurance companies. However, the Island was not regarded as a serious market for reinsurance capacity. ACE and XL had been incorporated in the late 1980s, but were yet to develop into the huge corporations whose headquarters now dominate the Hamilton skyline. The first major infusion of new capital began in the early 1990s with the formation of the "big cats". In 1995, the Insurance Act 1978 was amended to create four classes of insurance company for regulatory captives, class 4 being companies with capital in excess of $100 million (a figure which now looks rather modest for a property/catastrophe reinsurer).
The innovative development of financial reinsurance products and back-to-back insurance and derivative transactions resulted in a further amendment to the insurance legislation in 1998, providing for "designated investment contracts" which were not to be treated as insurance contracts for regulatory purposes. A number of companies were incorporated by private acts which allow them to create a special legal regime, designating contracts to be either insurance or not insurance. Private acts were also used to create segregated cell companies. The Segregated Accounts Companies Act 2000 (recently amended) now provides for the incorporation of cell companies by registration.
By the year 2000 over 1500 insurance companies (including over half the world’s captives) with $150 billion in assets and writing over $40 billion annually in premium, were incorporated in Bermuda. Following the attacks of 11 September 2001, new capital poured into Bermuda. Almost 100 new insurance companies have been incorporated since this time, of which 12 have capital in excess of $1 billion. Moody’s reported that the largest Bermuda start-ups "attracted in excess of $13 billion of fresh start-up capital, or about half of an estimated $27 billion of capital raised world wide post September 11." Therefore, if one takes into account the further capitalization of existing Bermuda companies, one sees that a significant part of the world’s new insurance capital has come to Bermuda.
The regulatory infrastructure has kept pace with the rapid expansion of the market. In 2001 a new position, Supervisor of Insurance, was created (the functions of insurance regulator had previously been performed by the Registrar of Companies). The Supervisor’s office is part of the Bermuda Monetary Authority which regulates Bermuda’s financial services industry. Arbitration remains the preferred form of dispute resolution for the reinsurance market. The Bermuda International Conciliation and Arbitration Act 1993, which adopts the UNCITRAL Model Law, makes Bermuda an attractive venue for arbitrations.
The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.
