The race promotes Bermuda’s stature as a safe harbour for investors, writes Phil Thornton
Exactly a month to the day before the launch of the 35th America’s Cup on May 26, Bermuda received a strong endorsement for the way in which its government has steered its economy through the global recession to become a safe harbour for investors.
Standard & Poor’s, the credit rating agency, affirmed its A+ grade for the self-governing British territory. “The policymaking is largely effective, predictable and proactive [and] its political institutions are stable,” Stephen Ogilvie, the primary credit analyst, wrote.
The agency expects the economy to grow by 1 per cent in 2017, in line with a similar performance in 2016 and marking a recovery from the period between 2009 and 2013 when output contracted on average by 3.3 per cent annually.
A key part of that recovery has been a resurgence in the tourism industry, which reversed a long-term decline. In 2016, air arrivals rose by 17 per cent, while hotel occupancy increased 10 per cent.
The America’s Cup will help to showcase the attractions of the island. The event has already attracted investment into projects such as the Loren at Pink Beach hotel; $100 million (£77m) invested in the Hamilton Princess resort; a development at Morgan’s Point peninsula; and optimism over a project in St George’s town.
But as Michael Dunkley, the island’s premier, points out, the America’s Cup presents an opportunity to sell Bermuda to more than just tourists. “We will have a number of people coming to Bermuda to watch this race, and the international business sector will be inviting their clients,” he says. “So it gives us an increased footprint with people here we can talk to directly.”
At the heart of this offer is Bermuda’s reputation as a leading jurisdiction for reinsurance, capital markets and insurance-linked securities (ILS), which together with other financial services make up more than a quarter of the island’s GDP.
The sector is on a roll. The volume of insurance-linked listings of catastrophe bonds, ILS, reinsurance “sidecar” notes and insurance-linked investment funds on the Bermuda Stock Exchange reached a new high at the end of 2016, exceeding $20 billion for the first time. Sidecars are limited purpose companies created to work in tandem with insurance companies, sharing in risk and profit.
Tim Faries, Bermuda managing partner for Appleby, the offshore law firm, says that the growth in ILS was due to a combination of an existing large reinsurance industry in Bermuda and a new efficient regulatory structure. “What makes Bermuda attractive for ILS structures is that it has been able to find the right balance in combining robust regulatory oversight with speed and efficiency,” he says.
The sector is reaping the rewards of years of collaboration between regulators in Bermuda and the European Union that led to the awarding of equivalence under the Solvency II regulatory regime. This means that Bermuda can trade on an equal regulatory footing with EU countries and other countries around the world.
Arthur Wightman, territory leader at PwC Bermuda, says: “This is an economy that is driven by having people here, a live underwriting environment principally focused on providing coverage to corporates worldwide in times of catastrophic need. So Bermuda is a very important cog in the global capital markets.”
Bermuda is an extremely accessible place for being the second most inaccessible place on the planet
This status may be enhanced by the UK’s decision to leave the EU. Faries says that this has enabled Bermuda to be seen, in some cases, as a stable alternative to a UK-domiciled group wondering what the future has in store post-Brexit.
The success of the reinsurance, ILS and tourism markets — along with growth in new sectors such as fintech and biotech — has enabled Bermuda to shrug off the misconception that the island is a tax haven.
Wightman says Bermuda has been given a clean bill of health by the OECD and benefits from its economic advantages rather than global tax structures.
“It’s an extremely accessible place for being the second most inaccessible place on the planet,” he says. “And it’s an incredibly warm and friendly country with a huge amount to offer for anyone who visits it, in whatever capacity.”