When Don Kramer, chairman of Bermuda-based Ariel Re, played a rap video at a year-end holiday gathering at the Bermuda Insurance Institute late last year, he did it to make a point.
The rap artist–David Roache, a.k.a. Roache Killa–is young, he's Bermudian, and he's an Ariel Re employee. He has also passed half of the actuarial exams, according to Mr. Kramer.
"We are training people, and that environment brings them to us," he said, recalling his speech at the Institute, an affiliate of the Chartered Insurance Institute in the United Kingdom.
Mr. Kramer made this point in reaction to an article in the Financial Times that was published a few days prior to his speech, suggesting that Bermuda's future was questionable.
"I felt obligated to change my speech. What I talked about was education in Bermuda–and how we are getting Bermudians, we are training them, and we are getting past the work-permit issues and bringing in local people," he said.
Earlier in the year, articles published in the Financial Times, as well as Bermuda's Royal Gazette and in Reinsurance magazine, had reported that insurance and reinsurance executives–supposedly dissatisfied with the Bermuda political climate in general, and, more particularly, frustrated with work-permit time limits and delays–might consider packing up and leaving Bermuda.
The articles citied off-the-record conversations took place at the Reinsurance Rendezvous de Septembre in Monte Carlo.
In the United States, just after Monte Carlo, Bermuda Premier Ewart Brown addressed attendees of an annual congressional dinner with the Caribbean community hosted by the Inter-American Economic Council, proposing a policy that would tie three-year work permits for some types of workers with requirements that the permit holders train local workers to do their jobs when the three years were done.
Mr. Kramer believes that some perceived threats to the Bermuda financial community described in last year's media reports were the product of heavy-handed political posturing by government officials in advance of a mid-December election.
"Bermuda recognizes the value of the international community to the health of Bermuda in terms of employment, in terms of the economy, in terms of bringing money to the island," Mr. Kramer told NU.
Still, "there's a feeling among some of the less informed people that the international insurance companies are using up Bermuda's oxygen [because] they have cars and they're crowding and they're inflating housing," he said.
"The government knows deep in its heart that if we ever abandoned the island, it would have severe negative economic consequences, but given that the government has to pander to a constituency, [officials] took a hard view," he suggested.
"The premier had to straddle a fine line, saying, 'I have to be strong with these guys,' [and] 'I'm not going to let them get away with anything,' but at the same time, the truth is he needs us," he added.
"Now the election is over, the government is settling in, and I think things are moving along," Mr. Kramer reported.
"We have issues. There is a six-year permit for certain executives who may be replaceable. Bermuda took the view that after six years, you should have been able to train a Bermudian," he said.
With six-year expirations now starting to kick in, "it's actually affecting people, including the insurance industry to a small extent," Mr. Kramer said, suggesting that other professions have seen a greater impact. For example, he reported that his Bermuda dentist will soon lose four of seven workers whose permits are set to expire.
With respect to insurance, he said, the industry and government have a challenge to work together to ready young Bermudians for industry jobs.
"You've got to improve the education system," Mr. Kramer said, repeating his message to the government. But the high school graduation rate for young black Bermudians is "horrific," he noted, reporting that it's in the neighborhood of 30 percent.
"It's your failure, not ours," he said, continuing his message to Bermuda government officials. "You give us bright Bermudians and we'll hire them, we'll train them, we'll give them scholarships."
A different threat to Bermuda insurers–coming from a group of U.S. insurers–is not going away anytime soon, Mr. Kramer predicted. That threat comes from a coalition of insurance executives who tried last year to convince federal lawmakers to pass a bill to remedy what they view as an unfair tax advantage for foreign insurers.
"I initially thought there might be a bill. It looks like that's not the case now, but the threat hasn't gone away," Mr. Kramer said.
The 14-member coalition is led by William Berkley, head of Greenwich, Conn.-based W.R. Berkley Group. Both Mr. Berkley and Mr. Kramer testified before the U.S. Senate Finance Committee last year.
Summarizing the arguments, Mr. Kramer complained that the coalition is "attacking Congress with sound bites." When actual tax-dollar figures are put on the table, there's "really not a great differential," he suggested.
He explained that the U.S. government levies an excise tax of 1 percent on gross revenue, stressing that the tax is not on net income. "A gross tax is paid in both good and bad years…Whether my combined ratio is 102 or 95, it's still 1 percent."
When Congress sees the real differential in tax dollars, it becomes clear that "the Bermuda [tax] advantage is not significant."
That doesn't come across "when you say 35 percent against 1 percent," he said, referring to the coalition stand that compares the excise tax rate to a 35 percent tax on income paid in the United States. "That sounds like there's a huge difference."
Mr. Kramer, continuing the argument he presented before the Senate committee, said the United States and United Kingdom have "long-established transfer-pricing rules."
Explaining the intent, he said, "I can't do business with my U.S. affiliates on anything other than an arms-length basis. The same rates that Swiss Re would charge my company, I have to charge my company."
"I can't simply shift money over to myself from the United States to reinsure myself unless I meet the arms-length standard," he continued, charging that the coalition has simply "whisked away" these facts with counterarguments suggesting that transfer-pricing rules are incomprehensible.
"When you say transfer-pricing doesn't work," as Mr. Kramer reported the coalition does, that "says basically that all of us are violating the law, which is just not true. We adhere to pricing very strictly."
Mr. Kramer said his side isn't just armed with reasoned arguments. In addition, a very large coalition of insurance buyers is helping the cause of Bermuda insurers, he said, noting that consumers from California, Florida, Louisiana and Mississippi that would be affected by any slip in Bermuda capacity in the property-catastrophe arena have begun to weigh in.
"They're asking, 'If you shut out these [Bermuda] companies, who is going to write this?' If we reduce capacity in a risk area that no one else wants to write, [the] U.S. consumer will wind up paying more," Mr. Kramer said.
"The last thing you want to do is reduce capacity right now," he added. "Consumers are benefiting from a soft market. Do you want to take that away from them?"
Mr. Kramer believes that Bermuda's draw is ease of entry, not lower taxes. "The big Bermuda advantage is the U.S. regulatory system's dysfunction," he said.
"If I had formed a company new in the United States the day after the big hurricanes [in 2005], to this very day, I still wouldn't be licensed in enough states to be meaningful," he said. In contrast, Ariel Re started up on Dec. 12, 2005, "and by Dec 12 of last year, I've had two years under my belt as a fully mature company."
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