Merger-mania in the international business sector could cost jobs in Bermuda, Finance Minister Bob Richards warned yesterday.

Mr Richards said that companies in the field remained strong, but that spending by international business on the Island had slowed over the past decade.

He warned that external threats from countries desperate to claw back money from offshore underlined the Island’s need for “financial independence” — a concept he introduced in last year’s Budget.

Mr Richards said: “A year later, I can say that never in any of our lifetimes has Bermuda faced an external regulatory/tax environment that is as hostile to our core international business model, and thus to our very ability to feed and clothe ourselves, to educate our children abroad or enjoy a reasonable standard of living from earnings from international business.”

Mr Richards said that, in addition to international groups such as the European Union and Organisation for Economic Cooperation and Development, individual nations, including Britain and the United States, were eyeing offshore jurisdictions in a bid to boost their own incomes.

He told MPs: “Recently, a very senior official in the US Treasury Department was quoted in the media as saying, ‘to be blunt, we really do need to kill the zero-tax jurisdictions’. To kill — you can’t be clearer than that.”

Mr Richards also took a swipe at the UK, which represents Bermuda as an Overseas Territory.

He said that Britain’s Chancellor of the Exchequer, George Osborne, had launched an investigation into why the City of London was losing hundreds of millions in insurance business to rivals such as Bermuda, Singapore and Switzerland, and had pledged to take steps to make the UK more attractive for insurance and reinsurance companies.

Mr Richards said: “This from our constitutionally mandated ‘representative’ in international relations.”

He was speaking as he delivered the annual Budget statement in the House of Assembly — a speech that was backed by the Association of Bermuda Insurers and Reinsurers (ABIR).

Mr Richards said that the growth of alternative capital, such as insurance-linked securities, had increased capital in the insurance industry, which had driven down premium rates.

“These conditions have triggered the merger-mania we have witnessed in Bermuda (re)insurance business in the past year,” he added.

“Such mergers provide the new entities with increased economies of scale to cope with the challenge of low rates and low investment returns. More may be on the way.

“In so far as the Bermuda economy is concerned, such mergers are likely to give rise to redundancies, thereby negatively affecting local employment.”

Mr Richards added that the slowed rate of spending in Bermuda by the international sector had originally been “driven by unwelcoming government red tape”.

He said: “Although that has improved considerably, external market forces have dampened international business growth.”

Major mergers announced in recent months include XL and Bermudian-based Catlin, and Axis and Partner Re.

Renaissance Re and Platinum Underwriters have also announced that they are to merge their operations.

Mr Richards said that if Bermuda failed to address its debt, it would suffer from plunging ratings from international agencies, which would make the Island less attractive to investors.

He said: “If we do not eliminate the deficit and start paying down our debt, we will not be in a position to resist the very same countries that are calling for changes in the international regulatory and tax system to destroy our international business sector.”

ABIR president and executive director Brad Kading said: “The Association of Bermuda Insurers and Reinsurers shares the Government’s vision of a fiscally strong and financially independent Bermuda.

“We recognise the Government’s necessary work to reduce public spending.

“As anticipated, the Government is requesting measured payroll tax increases in the new Budget, including increased contributions from ABIR member companies, which we support as part of a balanced Government undertaking.”

Mr Kading added: “Decreasing budget deficits and working towards effectively managing the debt is a necessary priority of the jurisdiction.”

Tom Miller, managing director at financial services firm PwC, said: “The minister made his case for the threat to our financial independence, as deficits swell our national debt.

“We will all bear the increased taxes needed to reduce the deficit as cost reductions have not met their goals and are not going to be sufficient on their own.”

Deloitte tax partner James Dockeray added: “Government is well aware revenue must increase, but they are aware that any substantial tax increase or the imposition of any new taxes may dampen the economic outlook and directly affect local business.

“As a result, they seem to have settled on a series of modest tax increases balanced with decreased expenditures.

“We were also intrigued by the Government’s plans to study ways to broaden and diversify the tax base and will be interested to follow that discussion in the near future.”

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