Having formed the first modern captive in 1962, Bermuda shows no signs of slowing down as a leading domicile. Industry experts explain why Bermuda is the first choice to establish a captive
The journey of Bermuda from a Royal Navy base to a tourist destination, and now an offshore financial centre, demonstrates its resilience and adaptability. Over the past 60 years, the island has become the domicile of choice for hundreds of captive insurance companies, with an advantageous tax rate and quality service providers, such as law firms, tax consultants and investment advisors. Throw in its exceedingly good climate, and all in all, it is fair to say that Bermuda is a strong captive destination.
As the global insurance market observes an increase in captive formations owing to rising commercial rates, Bermuda shows no signs of slowing down as a leading captive domicile. The Bermuda Monetary Authority (BMA) licensed three new captives between January and April 2024, taking the total number in the domicile to 630.
Why Bermuda?
Tanja Korff, senior vice president and Bermuda client services leader at Marsh Captive Solutions, highlights Bermuda's long-standing support for organisations establishing captive insurance and other alternative risk entities as a primary attractor. "This experience creates both individual and institutional knowledge that other domiciles really cannot compete with," Korff notes. She remarks that Bermuda's robust regulatory framework supports a wide spectrum of insurance activities, from property and casualty captives to commercial and life (re)insurance.
Korff adds: "Bermuda’s legal system is based on the common law legal system, which is great for dispute resolution. We are also centrally located and easily accessed through multiple, daily international flights.”
Echoing Korff’s views, Bermuda Captive Network (BCN) experts commend the local regulatory landscape for its sophistication and global respect. They underscore the BMA's ongoing efforts to align with international standards while maintaining an effective, risk-based approach. "Captives domiciled in Bermuda benefit from a regulatory environment that recognises their lower-risk nature while still ensuring financial soundness and transparency," they state.
In 2015, Bermuda enhanced its international competitiveness by achieving Solvency II equivalence, enabling local insurers to operate on par with their European counterparts. This regulatory alignment also incorporates the 953(d) election, which allows Bermuda-based companies to engage with the EU market while adhering to US tax regulations.
The BCN points out that Bermuda’s unique regulatory framework, which excludes certain classes of captives from stringent EU regulations, adds to the jurisdiction's appeal by reducing compliance costs and administrative burdens.
“Specifically for captives, the bifurcated approach provides for a proportionate regulatory framework. This allows for more tailored oversight of the captive regime and helps avoid the unnecessary burden of stringent Solvency II requirements, reducing compliance costs and administrative overheads.”
Korff notes that while the BMA’s bifurcated approach excludes captives in Classes 1, 2, 3, A, and B from the scope of Solvency II, captive owners within these classes benefit from the regulatory discipline and rigour in place at the BMA to ensure Solvency II equivalence and the National Association of Insurance Commissioners (NAIC) reciprocal and qualified jurisdiction status.
Captives in Bermuda have traditionally written property, casualty, and financial lines types of insurance. In recent years however, Bermuda has seen a diverse range of companies form captives. Growth has been observed in sectors such as healthcare, technology and cybersecurity, financial services, manufacturing and construction, and energy and utilities.
The COVID-19 pandemic has driven companies to create captives to manage risks associated with business interruptions and employee health and safety. This trend extends to the energy sector, where firms, including those in renewable energy, have formed captives to tackle environmental liabilities, operational risks, and sustainability concerns. The surge in cyber threats has also led many companies to establish captives to insure against data breaches, cyber attacks, and related liabilities. Additionally, rising healthcare costs have prompted firms to use captives in Bermuda for employee benefits, offering greater flexibility and potential cost savings.
According to the BCN), the most prevalent type of captive insurance companies are pure captives (Class 1), designed to cover the risks of their parent companies and affiliates. Originally, large multinational corporations formed captives in Bermuda to support the risk management of their global insurance programmes. While this practice continues, Bermuda has also emerged as a hub for midsize companies to form captives, providing tailored insurance coverage and overall cost savings. This shift indicates that captives are becoming an increasingly accessible and valuable tool for a wider range of businesses.
Adapting regulatory frameworks
As jurisdictions worldwide adapt their regulatory frameworks to stay competitive in the evolving captive insurance industry, Bermuda as a leading domicile is making significant changes. The latest modification to Bermuda’s regulatory environment is the introduction of the Corporate Income Tax Act, aligning with the Organisation for Economic Cooperation and Development's (OECD) Global Minimum Tax requirements. Traditionally known for its tax-free environment on profits, income, dividends, and capital gains, the jurisdiction will implement a 15 per cent corporate income tax starting 1 January 2025, following recent legislation passed by the Bermuda Parliament.
Experts from the BCN have engaged in discussions with industry leaders and concluded that the new legislation is expected to have a relatively low impact on insurers choosing Bermuda as their domicile of choice and those already operating within the jurisdiction. Industrial specialists acknowledge that while the new tax poses challenges for captive insurance companies, it also presents opportunities to enhance value and operational efficiencies. Captive owners have responded positively to the Act due to factors such as stability, predictability, and beneficial adjustments to assets and liabilities under the economic transition adjustment.
The new tax regime offers a stable and predictable policy, aiding multinational enterprises in accurate financial forecasting and strategic decision-making in a complex global tax environment. Additionally, the legislation exempts certain entities, such as government bodies, non-profit organisations, pension funds, and businesses that do not meet the multinational enterprise (MNE) group annual revenue threshold of €750 million or have a limited international footprint.
BCN specialists highlight the potential benefits: “[The new Act] offers opportunities for Bermuda to strengthen its position as a leading domicile for captive insurers. By leveraging its regulatory strengths, enhancing its reputation, and fostering innovation, Bermuda can continue to attract and retain high-quality business in the evolving global tax landscape.”
Like any jurisdiction, Bermuda faces external pressures from global regulatory bodies. These include the Global Minimum Tax (Pillar 2), General Data Protection Regulation (GDPR), and Anti-Money Laundering/Anti-Terrorism Financing (AML/ATF) legislation. However, Bermuda distinguishes itself by proactively addressing and embracing these changes, meeting international regulatory standards. This approach attracts businesses that value a reputable jurisdiction with an internationally respected insurance regulator and a highly efficient (re)insurance market, bringing peace of mind to any organisation's board and management.
The decision on where to form a captive is crucial and unique to each organisation. Experts from the BCN note that Bermuda has drawn a significant number of new captive formations from North America, specifically the US and Canada, due to the island's proximity, regulatory reputation, and expertise. Meanwhile, European companies, particularly those from the UK and EU, have chosen, and will continue to choose, Bermuda because of its compliance with international standards and strategic advantages.
“There is now continued interest and growth from companies in Asia and Latin America that are looking to leverage Bermuda’s strong regulatory framework and industry expertise. We believe that captive growth in these regions will also continue to increase. This diverse geographical spread underscores Bermuda’s global appeal as a premier domicile for captives, capable of meeting the needs of businesses from various regions and industries.”
By focussing on its strengths and continuing to adapt to global regulatory changes, Bermuda is well-positioned to respond to the challenges facing its captive industry. The island’s commitment to maintaining high standards, fostering innovation, and leveraging its extensive expertise will help it remain a leading choice for captives in an increasingly competitive landscape.
Leading the competition
Earlier this year, Marsh, the world's largest captive manager, launched Edgware Re, a pioneering cyber-only captive group in Bermuda. Licensed as a Class 3 insurer, Edgware Re transacts business exclusively with its participating members, allowing participants to purchase up to US$10 million in (re)insurance based on their needs. The captive pools participants’ cyber risks and premiums, absorbs losses, and facilitates the exchange of cyber-security best practices among members.
Reflecting on Marsh’s choice to establish its domicile in Bermuda, Korff emphasises the island’s responsiveness to global trends and challenges. This aligns with the company's commitment to technology and innovation, consistently pushing the boundaries of captive insurance. She points out that Bermuda is distinguished by its forward-thinking captive domicile, notably through the Innovative Insurer General Business (IIGB) licence, commonly referred to as the ‘sandbox licence’.
This licence allows new companies to test groundbreaking ideas, such as cryptocurrency and blockchain, within the captive space before seeking a full commercial licence. Additionally, for those with more advanced products, the regulatory framework offers a clear pathway to obtaining a full captive-class licence.
"In Bermuda, we are fortunate to have strong relationships between the regulator and various captive managers," she says. "Through open dialogue, a curious mindset, and a focus on innovation, we can identify the best possible solutions for all parties involved."
In return, the captive sector impacts the Bermuda economy in a number of positive ways. According to Korff, a multitude of captive experts live and work here, helping the local economy to thrive.
Additionally, clients and service providers regularly travel to the island for board meetings, boosting the economy in lodging, transportation, food and beverage, retail, and recreation. Lastly, clients are investing funds in insurance vehicles, which require attention from other financial organisations and professional service providers, thereby enhancing the overall economic impact of Bermuda's wider captive community.
Despite being a well-established captive domicile, Bermuda continues to see growth, especially in the commercial and long-term insurer space. AI is impacting various insurance lines, including general liability, errors and omissions, medical malpractice, and cyber insurance. Korff notes that AI is altering the frequency and severity of existing risks, and its rapid evolution often outpaces commercial insurance. Captives, therefore, provide companies with the flexibility to define and refine risk retention, addressing unknowns and gaps in commercial policies. Bermuda's sophisticated regulatory environment and established professional infrastructure position it at the forefront of these trends.
Setting up a captive insurance company involves significant time and resources. Marsh advocates for 3-5 year plans and long-term strategies that accommodate market changes and emerging risks. Korff emphasised the importance of ongoing evolution for captives, paralleling the organisation’s growth. She praised Bermuda's efficiency, noting that a comprehensive licensing application submitted to the BMA on a Monday typically receives a response by Friday.
"Bermuda understands the importance of speed to market," Korff says. "A responsive regulatory environment is crucial for our clients, and Bermuda consistently delivers."
Bermuda’s longstanding ties with the international insurance industry, a modern and sophisticated regulatory framework, and a robust network of service providers have collectively positioned it as an attractive destination for captive owners seeking comprehensive insurance solutions. Korff emphasises the importance of approaching this opportunity with an open mind, a willingness to challenge existing beliefs, and a commitment to developing clear strategic plans. She advises: "Gaining executive buy-in is imperative, so ensure ample time for education, allowing all parties to understand the process thoroughly."
The island, the birthplace of the captive insurance sector, established its first captive over 60 years ago and remains a dominant player in the industry. According to the BCN, Bermuda’s regulators, in collaboration with industry leaders, continue to refine regulatory frameworks to support innovative insurance products and services. These include solutions for environmental liability, climate risks, parametric risks, and other niche areas that attract reputable new business lines to the island. Additionally, investments in technological advancements within the insurance sector, such as blockchain for smart contracts and insurtech innovations, also establish Bermuda as an innovative and modern jurisdiction.
