Is Bermuda in the midst of an identity crisis? That's the impression this reporter received after a full day of existential angst expressed during the Professional Liability Underwriting Society's recent “Bermuda Perspective” conference.
Among the threats cited by various speakers and attendees was the vulnerability of Bermuda's market should the United States move to level the tax liability playing field, as well as the ability of the island's infrastructure to handle further insurance industry expansion.
U.S. Consul General Gregory Slayton–no doubt emboldened by the fact he will be out the door shortly after the Bush administration is sent packing next January–was polite but blunt in addressing challenges facing the island in his opening remarks at the PLUS conference.
Mr. Slayton predicted that “any change in tax legislation could be devastating, even catastrophic to Bermuda.” He said that strengthening the island's regulatory environment is “absolutely critical,” while warning that if shortcomings in local education are ignored, Bermuda “runs the risk of losing its social cohesion.” (For my full story on his controversial speech, see NU's June 9 edition.)
However, deeper concerns were aired here about Bermuda's long-term viability, as many of the coverages pioneered on the island have gone main stream.
In essence, one underwriter told me during a coffee break, the key question is: How does Bermuda remain a market of choice rather than a market of need–especially with prices falling and coverage expanding so rapidly these days?
Throwing down the gauntlet was Dan Bailey, chairman of Bailey Cavalieri LLC's D&O practice group in Columbus, Ohio. Following his lecture on the history of directors and officers insurance, Mr. Bailey questioned whether Bermuda could retain its leadership position.
“For Bermuda, the big challenge is to remain relevant,” he said. “You don't really offer anything unique or essential, which were the hallmarks of Bermuda's past success.”
He said that to stay on top, Bermuda “needs to be a thought leader. You must remain creative and insured-oriented, offering new opportunities, new products and new ways to write coverage.”
Bermuda has always been the go-to market for innovators and emergency capacity providers. That's how the captive market first put Bermuda on the map in the 1970s, how the D&O market boomed here in the 1980s, and how property-catastrophe carriers multiplied overnight on the island right after Hurricane Katrina.
Bermuda still has substantial competitive advantages, to be sure. The underwriting expertise and capacity assembled within walking distance of Front Street in downtown Hamilton is rivaled only by that surrounding Lime Street in London. Plus Bermuda will still write coverage others won't or can't–such as for punitive damages.
But is that enough to keep Bermuda on top, or will its gravitational force wane with the softening market, the dilution of its product exclusivity, and possible changes in the U.S. tax code?
This isn't the first time Bermuda faced such existential threats. After Bermuda set the standard as the world's captive haven, many U.S. domiciles have since sprung up–led prominently by Vermont–to give risk managers a multitude of options closer to home.
However, it's easy to forget that despite the growth in U.S. domiciles, Bermuda remains the world's leading captive market. No doubt, the same fate will hold true for copy cats challenging Bermuda's supremacy in other specialties.
Meanwhile, Bermuda insurers speaking at the conference downplayed the tax controversy raised by vocal U.S. critics such as William Berkley, chairman and CEO of W.R. Berkley Group.
“You never know what provisions Congress will slip into legislation at two in the morning,” said Michael Butt, chairman of Axis Specialty Ltd. “But we are closely monitoring the debate, and I am not losing any sleep over it at the moment.”
Insisting that the island's tax advantage is being overblown, he said that “Bermuda is not a cheating machine. We add real value in the value chain. We provide tremendous capacity and innovative solutions to the U.S. market. No one should forget that.”
As for infrastructure problems–particularly a potential shortage of qualified people to staff the growing number of carriers on the island–outsourcing of non-core functions could provide a solution, according to Marty Becker, chairman and CEO of Max Capital Group Ltd.
“Keep the face-to-face client activities and strategic senior management and underwriting talent here, while outsourcing the rest,” he said–a suggestion seconded by G. Rees Fletcher, president and CEO of ACE Global.
“Besides,” added Mr. Butt, who also raised outsourcing as an option, “infrastructure issues are much more a problem of success. That's better than the other kind.”
In any case, regardless of the U.S. consul's slap at Bermuda's educational system, I sat next to three local women at the conference–all assistant underwriters and eager to learn more about their new profession. They told me they were recruited after receiving university degrees in law, finance or accounting, and found insurance interesting and challenging.
If insurers on the island do more of this–go hard after bright Bermudians with an enthusiasm for learning, training them on the job in all they need to know about insurance–the infrastructure problem might not be much of a threat after all.
There was also a spirited debate at the conference about another competitive edge Bermuda might pursue–adoption of a single policy form for multicarrier, excess liability coverage. However, some complained that such a move would commoditize the product and dilute the value individual insurers bring to the table. (See my story in NU's June 16 edition for more on this.)
Others suggested that Bermuda–known as the home of king-size risks–might expand more aggressively into the middle-market segment, although some again cited the limits of the island's infrastructure as making such high-transaction business difficult to write affordably.
Bermuda carriers could also innovate to tweak existing product lines, suggested Mr. Bailey, an icon in the D&O field.
For instance, the growth in opt-out suits–in which litigants, especially institutional investors, refuse to accept a group settlement and sue as individuals instead–could perhaps be covered under a new policy with its own limits, he noted. (However, some here wondered aloud whether this might not encourage more to file opt-out suits, knowing there is a separate pot of gold waiting to be tapped.)
Mr. Bailey also opined that the interests of individual directors and officers are diverging so widely these days that it might make sense for Bermuda to offer specific, separate policies to each party rather than cover them all under a single form. (Again, however, some attendees fretted about whether such a move might backfire by encouraging directors and officers to sue one another.)
With the explosion of privacy lawsuits over breaches in data security, cyberliability also offers opportunities for growth in Bermuda, speakers here suggested.
The bottom line is that Bermuda has always managed to reinvent itself. Key players on the island have no doubt it will do so again, coming out with coverages not yet imagined, while providing capacity where others are shy to stray.
Given its stellar track record thus far, I would have to concur that if a risk can be written creatively, boldly and profitably, it will always find a home in Bermuda.
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