A new note from S&P says that Bermuda has become a global financial hub for property/casualty re/insurance, with a growing presence in life re/insurance.
This, said the firm, had happened due to the amount of related premiums written by Bermudian re/insurers. According to S&P Global Ratings, Bermuda’s share of the global reinsurance market based on net reinsurance premiums written fluctuated between 7% and 9% in the past five years. In addition, it remains an attractive domicile for sidecars, alternative capital structures, collateralized reinsurance, insurance-linked securities, and structured solutions for legacy business.
S&P wrote: “Over the past few decades, Bermuda has also become the domicile of choice for global re/insurance start-ups. The territory offers adaptable legislation and regulation, tax efficiency, established infrastructure, and proximity to the U.S., the largest re/insurance market in the world. It also benefits from institutional stability and its track record of implementing reforms to ensure sustainable public finances and economic growth over the long term.”
According to S&P Global Ratings, despite a sizable economic contraction of 6.9% in 2020, real GDP increased an estimated 1.9% in 2021 and will grow by 3.2% in 2022. This would lead to GDP per capita of about $119,920 in 2022. It said that the international financial services sector represented about 27.5% of Bermuda’s GDP in 2020, much larger than tourism’s share (typically about 5% of GDP), and has remained resilient in the past few years.
It also said that the tax regime in Bermuda could be evolving with proposals regarding a global minimum tax under the Organization for Economic Cooperation and Development (OECD) Pillar 2 and the U.S. passive foreign investment company regime. In December 2021, the OECD published detailed rules to assist in the implementation of a landmark reform to the international tax system, which will ensure multinational enterprises will be subject to a minimum 15% tax rate from 2023. The minimum tax will apply to multinational enterprises with revenue above €750m.
It added: “We believe this minimum corporate tax rate could affect Bermudian re/insurers, whose corporate income tax rate could jump to 15% from 0%, reducing their profits. However, based on our conversations with some re/insurance executives on the island, the Bermudian authorities could possibly lower the payroll tax as a potential offset.”
