Bermuda captive insurance companies continue to provide creative solutions

By Andrew Barile

Andrew Barile Consulting Corporation


In recent years, adding value for owners of captive insurance companies has been my focus as an independent director for both domestic and offshore captive insurance companies. In 1978, I wrote the textbook, The Captive Insurance Company... An Emerging Profit Center, which the Bermuda insurance regulatory authorities used to form their initial regulations. For the first time the names of many U.S. major corporations were in print -- names such as Gulf Oil, Pepsi Cola, General Motors, Princess Hotels and Phillips Petroleum-- who owned Bermuda insurance companies as a creative insurance solution. In July of 1978, my interview on offshore insurance companies appeared on the front page of the Sunday Business Section and was read by CEOs and CFOs of America's Fortune 500 corporations. That Fourth of July weekend created a "big bang" for Bermuda, and formulated the educational process for major U.S. corporations to use Bermuda captive insurance companies as a risk management tool, and create another profit center.

Some 30 years later, the Bermuda World's Risk Capital Center continues to expand. At this year's Annual Captive Conference, ACE Hardware executives explain their strategic uses for creating profits with captive insurance companies. Captive owners explain how employee benefits are now being written in Bermuda captive insurance companies. Private equity firms, such as GTCR (Chicago), using Fox-Pitt Kelton Cochran Caronia Waller acting as exclusive financial advisor, invest $200 million in a Bermuda offshore insurer and reinsurer -- run by former AIG executives.

Kirkland & Ellis, Dewey & LeBoeuf LLP, AON Benfield Securities and Merrill Lynch & Co. are all providing services in this Bermuda transaction. In November 2009, Goldman Sachs' will hold its customary Asset Management Conference for invited Bermuda reinsurance companies. That same month, Standard & Poor's and Pricewaterhouse Coopers are holding their annual Bermuda insurance conference at the Fairmont Hamilton Princess. The significance of Bermuda as a creative insurance center is enormous, considering the magnitude of almost a thousand Bermuda insurers and reinsurers.

General International (Bermuda) Limited, the captive insurance subsidiary of General Motors Corporation, wrote some 80 percent of its business as employee benefits. It's a Class One Bermuda insurer that gave General Motors some great value, saving the company some $40-50 million annually on employee liability coverage alone. General International of Bermuda also writes some marine insurance since General Motors ships a lot of cars around the world, and looks forward to the China and India expansion. Will the new board of directors for General Motors understand the advantages of their Bermuda connection?

Bermuda First -- co-chaired by the Honorable Ewart Brown, Premier, and the Honorable Kim Swan, Opposition Leader, with a 17-member steering committee -- has contracted with McKinsey & Company to study how Bermuda can best preserve and grow their economy. The Honorable Paula Cox, finance minister, is still perplexed as Bermuda being labeled a "tax-haven," despite its 19th century tax policies.

Meanwhile, Oil Insurance Ltd. has initiated a project to review the level of windstorm coverage, after having experienced a $1.4 billion net-loss for the year. In fact, they even have a new slate of directors.

Bermuda has created insurance companies that insure and reinsure the risks of U.S. corporations. Recently, even Stamford Medical Center moved its Hawaiian captive insurance company to Bermuda so it can expand the professional liability coverage afforded to Stamford's physicians and hospitals. A focus on attracting very experienced insurance executives throughout the past 30 years, coupled with a very cooperative government, has enabled Bermuda to grow to the worldwide leader of captive insurance companies.

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