Bermuda Expected To Maintain Market Stability Amid 15 Percent Corporate Tax

As Bermuda prepares to implement a 15 percent corporate tax rate in January 2025, questions arise about its potential impact on the island's status as a global insurance and reinsurance hub. According to a blog by Ben Dyson and Jason Woleben titled Bermuda's Global Insurance Market Expected To Weather New 15% Tax Rate, Fitch Ratings suggests that the change will not significantly alter Bermuda's attractiveness. While the Corporate Income Tax Act 2023 ends the zero-tax environment for large multinationals, Fitch believes Bermuda's appeal goes beyond tax advantages, driven by factors such as its regulatory framework and established reputation in the global insurance market.

Despite this shift, the blog notes that experts expect minimal disruption to Bermuda's standing in the insurance and reinsurance markets. Fitch Ratings director Douglas Baker, cited in the blog, suggests that while there might be some marginal shifts in business to other jurisdictions, most companies domiciled in Bermuda will continue to stay. The reasons go far beyond tax considerations.

A History of Strength Beyond Tax Benefits

As noted in the blog, Bermuda's global reputation as an insurance hub dates back to the mid-1980s, when major insurers like Ace (now part of Chubb) were formed to address liability coverage shortages in the United States. Over the years, the island has become home to numerous global insurers, particularly in life, property, and casualty markets. Bermuda's life and annuities insurers and reinsurers alone wrote $134 billion in gross premiums in 2022, according to data cited in the blog from the Bermuda Monetary Authority.

According to Mr. Baker, Bermuda's regulatory framework is a significant factor behind its continued appeal. The blog further notes that Bermuda is recognized as a reciprocal jurisdiction by the US National Association of Insurance Commissioners and as an equivalent third country under the European Union's Solvency II regime. These designations make Bermuda an attractive destination for multinational insurers and reinsurers.

More Than Just a Tax Haven

While Bermuda's lack of corporate income tax has traditionally been a lure, it is not the island's only attraction. As noted by Mr. Dyson and Mr. Woleben, Paul Brand, CEO of Convex Group, stated in a September 2023 interview that the tax rate was not a key factor for Convex when it established its operations in Bermuda in 2019. Instead, Mr. Brand emphasized that Bermuda's well-regulated environment and its position as a core reinsurance market were far more important considerations. This sentiment, according to the blog, reflects a broader trend among Bermuda-based companies who value the island's established regulatory regime over its tax advantages.

According to the authors, while some companies may have initially been drawn by tax incentives, Bermuda's solvency regulations, skilled workforce, and deep insurance expertise continue to be greater factors in maintaining its position as a global hub.

Navigating the New Tax Landscape

The blog highlights the various ways Bermuda's insurance market has already navigated significant tax-related challenges. For instance, the US Tax Cuts and Jobs Act of 2017, which reduced US corporate tax rates and introduced the Base Erosion and Anti-Abuse Tax (BEAT), had a more significant impact on Bermuda-based insurers than the upcoming 15 percent tax. As Mr. Baker pointed out in the blog, companies already paying US taxes via BEAT or US-taxable subsidiaries will find the new Bermuda tax "somewhat of a wash."

The blog also discusses measures within the Corporate Income Tax Act that soften the impact of the new tax. One such provision allows companies to establish deferred tax assets that can reduce their tax liabilities over the next decade. For example, as cited in the blog, Athene Holding set aside $1.76 billion in deferred tax assets, while Arch Capital Group set aside $1.20 billion.