Fee increases would make Island less competitive say captive bosses
A planned increase in regulatory fees for insurance companies by the Bermuda Monetary Authority (BMA) would have a “detrimental impact” on Bermuda's competitiveness as a domicile.
That is according to the Bermuda Insurance Management Association (BIMA) who have raised concerns that the BMA's proposed fee hike of $11,000 for Class 3 insurers from $19,000 to $30,000.
But according to the BMA, its Regulatory Fees Amendment Act 2010, which was tabled at the House of Assembly on Friday by Premier Paula Cox in her capacity as Finance Minister, was designed for tighter supervision of Class 3 insurers that write significant amounts of unrelated business.
Captives provide insurance for their parent corporations and some also underwrite some third-party risks.
Tom McMahon, president of BIMA, said he was concerned about the size of the fee increase and the message it sent out to the rest of the world about the cost of doing business in Bermuda.
“We had expressed our concerns regarding the proposed fee increase from $19,000 to $30,000 for the Class 3 companies as well as some of the other increases for filing extensions which showed a high percent increase,” he said.
“We feel it is going to affect our competitiveness vis-a-vis the other jurisdictions that we are competing with.”
Mr McMahon revealed that BIMA had entered into discussions with the Authority to air its concerns and he hoped that they would be taken on board.
He said the fees should be kept low for Class 3A companies and increased in specific cases for those that require a higher level of supervision.
Bermuda is a world leader as a captive domicile, but faces increasing competition from rivals including the US state of Vermont and the Cayman Islands.
Brad Kading, president and executive director of the Association of Bermuda Insurers and Reinsurers (ABIR), said that ABIR, which represents the Class 4 commercial re/insurers, was supportive of the planned legislation as part of the BMA's move to gain Solvency II equivalence.
“ABIR supports the fee increase proposals as prepared by the BMA and submitted by the Premier to the Assembly,” he said.
“Building out a robust regulatory model for Bermuda's internationally active insurance groups so that the BMA can be found equivalent to Europe's Solvency II is essential for Bermuda if it is to continue as an international insurance centre.
“The BMA is being recognised by its peers around the world with key committee assignments in the International Association of Insurance Supervisors (IAIS); and in Europe with the designation of Bermuda as one of only two jurisdictions to be evaluated for full equivalence with the European Union on its Solvency II insurance regulation system.
“This essential work of the BMA takes talent and money. We support the fee measures as necessary to achieve these regulatory milestones and others that BMA CEO Jeremy Cox will be striving for in the future. We expect the Ministry and the BMA to be good stewards of the resources they are charged to manage. We don't write blank cheques.”
The results from the BMA's consultation revealed that there was some resistance from the long-term insurance sector to the fee increases which the Authority believes can be addressed when the new class structure comes into effect and has held a number of meetings to deal with the issues raised.
The findings highlighted the captive insurance sector as the biggest stumbling block, stating: “This fee increase has met with strong resistance from BIMA who have yet to articulate, with any substance, why insurers in this class do not require enhanced supervision.
“The Authority has not ended discussions on this matter but have left it with BIMA to come back with reasoned argument as to why insurers in this class should have reduced fees.”
However the report did hint that a resolution could be reached by both parties.
“It is possible that the Authority will agree and will use its new powers to reduce fees for certain insurers as the mechanism for change without going back to the House,” it stated.
The report warned that any reduction in this class would affect the BMA's operating budget and in such circumstances it would further reduce its expenditure rather than seek approval to increase the planned deficit.
The Act has also come under fire from Shadow Finance Minister Bob Richards who warned that the big increase in penalty fees for insurance companies who failed to make their annual payments on time under regulations approved by the House would bounce back to hit everyday Bermudians. He described the BMA as a “black hole” where money disappeared and needed to be accounted for, while he said that the Authority itself should be subject to public oversight, as reported in
The Royal Gazette yesterday.