US scrutiny on tax havens hasn’t extinguished enthusiasm for the jurisdiction

All eyes are on Bermuda. The financial services market on the island is undergoing seismic change. In the absence of a market-moving event, the companies based there are making the headlines themselves.

Excess capital is continuing to dampen rates, so M&A is the name of the day – as RenaissanceRe chief executive Neil Currie joked at the recent World Insurance Forum, there seems to be an investment banker lurking behind every shopfront, looking to broker a lucrative deal.

Max Capital and Harbor Point are leading the charge, in a transaction universally agreed to look sensible on paper. It’s been billed as a ‘merger of equals’, and will take the resulting company, to be called Alterra, past the magic $3bn mark in terms of capital.

Meanwhile, the industry grandees are clearing out to leave room for the second generation. Don Kramer has left the top job at Ariel Re in favour of long time second-in-command George Rivaz, while Ken LeStrange has handed the reins to David Cash at Endurance. The common wisdom is that their departures put their companies in play – so watch this space for news to come.

Triumph through adversity

As businesses continue to trade below book, and regulatory uncertainty in the US hovers on the horizon, deals aren’t happening as fast as otherwise might be expected. However, there will almost certainly be more deals in the next six months, especially in the light of pressure from private equity investors for an exit plan.

Meanwhile, ever since US President Barack Obama publicly came out against tax havens, there have been concerns about Bermuda’s viability as a jurisdiction. Flagstone Re recently became the latest company to plan a move. But companies still on the island are staunch in their defence. Despite the recent 2% rise in payroll tax, it is still an extremely business-friendly environment, and moves to elevate the financial regulator and implement Solvency II standards will improve its status.

The picture in Bermuda may be changing, but for the next few years at least, it will remain a major player on the international insurance scene.

Key points

  • Excess capital is continuing to dampen rates
  • More deals will follow the merger of Max Capital and Harbor Point in Bermuda
  • The domicile remains an attractive location despite US?scrutiny