Situated in the North Atlantic Ocean, Bermuda is
53.31 sq km and around a third of the area of
Washington, DC. The island is the overseas territory of
the United Kingdom and one of the key insurance and
reinsurance markets of the world, especially for the property and
liability catastrophe risks. It is noteworthy that such a small place
is the seventh largest reinsurance market in the world (based on
1999 S&P figures)2 and home to 14 US exchange traded
companies, with a combined market capitalization of almost US$
33 bn3 as on December 31, 2000. What makes it achieve such a
status is the factor worth considering.
Development of the Bermuda Market
The starting point for Bermuda’s insurance market can be
linked to the passing of the American International Company
(AICO) Act in December 1947. This Act gave emergence to ‘exempt’ companies where the limit of foreign participation at
40% was not applicable.4 The important clause was that these
companies were allowed to conduct business only outside
Bermuda. American International Group (AIG) was the first
company to exploit the regulatory environment that had taxfree
status, a stable government and adherence to English law.
AIG’s two arms—the American International Reinsurance
Company (AIRCO) and American International
Underwriter’s Overseas (AIUO) operated in Bermuda and
collectively employed 300 people, which was the largestnumber of employees working in one company in the mid-1950s in Bermuda.
In the early-1960s, the concept of ‘captive’ evolved in Bermuda when Fred Reiss formed
International Risk Management Limited, which was a pure management company. He sold the idea
of forming captives through his network to many clients. The benefits of forming a captive in Bermuda
were mainly tax-free profits and hence speeded up capital growth in the company. |
