The financial crisis has turned up the heat on Bermuda to increase transparency and supervision of captive formations, as it bids to attract new business to maintain growth despite a soft insurance market, according to alternative risk-transfer experts.

In an interview with National Underwriter, Shelby Weldon, the Bermuda Monetary Authority's director of insurance, licensing and authorisations, said that the Island had worked to assure financial stability and since captives did not pose any systemic risk, the need for major regulatory change was limited.

"So it's our belief that our regulation or how we supervise captives is already appropriate with international standards, and there is no desire for us to change that drastically," he said.

Mr. Welby said that Bermuda continued to keep an eye on international events and sat on "a number of the international regulatory bodies that are setting these standards, particularly for captives, so we have an opportunity to influence that process".

Historically, he said, the Island has not seen as much business in special-purpose vehicles as it would have liked, "but now we've set up to encourage a lot of that business to seek Bermuda as the place to set up those vehicles".

"When you have seen a downturn in captive formations, a number of companies that normally would have set up individual captives will go through the segregated account structure," he said.

Mr. Welby said that Bermuda had seen a number of cases when a company launched its first captive through a segregated cell, then "the programme gets large enough for them to establish a separate captive in Bermuda as a result of that experience. So we hope that will help generate additional business as we move forward."

As for looming legislative threats, such as efforts in the US Congress to hike up taxes on offshore financial centres, Mr. Weldon said, "when you do have those issues that may bring uncertainty as to how the regulatory framework will play out, contingency planning is a prudent thing to do. But from our perspective, we are continuing with our initiatives and will continue to manage/legislate/supervise captives as we have always done, so Bermuda will react accordingly once those international issues resolve themselves, whether they be from the US or the EU"

"So there's not really much we can do about it," he added, "except to continue to provide a framework-a regulatory approach that appropriately supervises captives and creates an environment that captive owners find advantageous for their insurance solutions."

In terms of numbers, he said, "whether you look at incorporations or premium volume, Bermuda still assumes its leadership position." He said all captive domiciles have experienced some declines in new launches over the past two years, adding, "I would expect a lot of that is a direct result of the financial crisis."

Mr. Welby said that recent market dislocations had impacted the whole financial services sector. "So we are weathering that storm. We have seen a slight increase in our incorporations in 2009," he said.

"Our indications for 2010 seem to suggest that we are anticipating further increases. To the extent the global economy continues to recover, we expect that will have a positive impact on the captive sector."

But he added that Bermuda was optimistic and continued to interact with its client base and service providers to provide an environment conducive to captive formations.

"The Marsh's, the Aon's continue to have a significant presence in Bermuda," he said.

"They continue to interact with us on a frequent basis, such that we keep them apprised of what we are doing from a supervisory, regulatory perspective, and we keep our pulse on what's happening in the market, so we can adjust accordingly."