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BeRMUDa FoCUs
Joanne MacPhee Executive Director Bermuda Chamber of Commerce 1 Point Pleasant Road / Hamilton PO Box HM 655 / Hamilton HM CX Tel (441) 295-4201 / Fax (441) 292-5779 www.bermudacommerce.com/
The Chamber of Commerce in Bermuda: A Relevant Fit for Today’s Economy
The Bermuda Chamber of Commerce (‘The Chamber’) was offi cially established in February 1907, with a mandate ‘to develop, encourage, promote and protect the commercial, professional, fi nancial and general business interests, and the economic well-being of the members of the Chamber and of Bermuda.’
Over a century later, The Chamber remains committ ed to its core purpose and in doing so continue to guide and protect the general welfare and prosperity of our members, the business community and Bermuda as a whole. It does this while promoting and maintaining sound and ethical practices, educating our members about our on-going activities and advising, and lobbying the government on matt ers of mutual concern. There is something inspiring in the way a chamber can make a diff erence in its community, by fostering a bett er climate for business and bringing like-minded people together to achieve a common goal. The Chamber is, by its nature, a membercentric organisation, dedicated to building a strong and profi table community that att racts investment. Viewed by many as a local commerce partner, The Bermuda Chamber of Commerce does in fact represent the needs of both the domestic and international business community through its affi liation with the Association of Bermuda International Companies (ABIC). Advocacy is at the heart of everything we do. Working collectively, or through our industry-led divisions, members are empowered to positively aff ect policy reform and change. The Chamber’s relationship with the government is a key driver to our success, but as an a-political organisation we tread a very fi ne line to ensure that we balance the needs of our constituents against the need to maintain a positive relationship with those holding power, whether as elected offi cials or civil servants. To maintain that vital degree of separation, the Chamber receives no direct funding from the government, although grants have been and continue to be ceded to fund tourism initiatives.
Networking is another key component of the overall Chamber experience. The opportunity to meet and gather with peers to discuss issues of mutual concern and interest is vital
to the accomplishment of shared goals. The Chamber represents over 700 members in a number of diverse industry sectors. These members are encouraged to participate in Chamber activities through industry specifi c and geographic divisions. Today, in addition to ABIC and the Economics Advisory Committ ee, there are currently nine active divisions of The Chamber: Automotive; Business Technology; East End; Printing & Publishing; Real Estate; Retail; Restaurants and Hospitality; West End and Young Professionals.
In the best of times a chamber is valued – in the worst of times it should be seen as essential. These are the worst of times. As real estate is always a key economic indicator, it was no surprise that when housing prices tumbled in 2009 so did everything else. Both commercial and residential inventory is now at an historic high with only 66 properties changing hands in 2011. This, many concede, is probably as much as a four-year supply of offi ce space currently on the market. The impact on the construction industry is obvious.
The precise number is unknown but anecdotally it is believed that since 2009, more than 4,000 non-residents have left Bermuda. As international business continues to shed jobs, further reductions are reported almost monthly. This has an impact across the local economy, as demonstrated by the decline in the numbers of new cars and bikes imported into the island, reduced electricity generation, fewer containers being landed at the docks, and many empty apartments and lower rents. All of this contributes to lower economic activity and shows up in declining Gross Domestic Product. Meanwhile, since 2008, restaurant owners have been grappling with the tremendous 40 to 50 percent losses experienced in fi ne dining sector. This industry was the fi rst and hardest hit by the shrinking international business community. Consistent with worldwide trends, our hospitality sector has also experienced steady declines yearon-year, with total revenues and current occupancy rates well behind 2007. Then there is retail, which is working feverishly to stay ahead in the shadow of a deepening recession and increased competition from global online shopping trends. Throughout this turmoil, The Chamber has continued to position itself as an essential support mechanism. As a direct result of Chamber collaboration and lobbying, both the retail and restaurant sectors have received much needed tax relief. Furthermore, the government has harmonised the duty on personally imported goods, thus supporting the retail sector’s ‘Go Local’ directive. Immigration reform remains another hot topic and The Chamber continues to speak openly on the need to create a more welcoming and productive business environment – one that fosters growth, investment and long-term commitment. The government has informed the people of Bermuda that in the not too distant future they will be holding a Referendum on the issue of gaming. The Chamber has taken a lead on this issue and has already canvased its members for their initial opinion on this matt er of national interest. In January 2012, The Chamber’s Economics Advisory Committ ee hosted a standing room only roundtable discussion on the state of the local economy, with another planned on ‘how to fi x the economy’. The Committ ee has also prepared a White Paper of Public Debt Management, which is now before the Cabinet Secretary for review. Much has also been done behind the scenes to assist our members in both the east and western ends of the island, to enable them to fully capitalise on current tourism activity. Meanwhile, the Real Estate Division continues to lobby for legislative reform to reverse a decision, which currently prohibits Bermudian land-owners from selling to non-Bermudians and those holding permanent residency status. They are also hoping that the government will abolish the current licensing requirement imposed on Bermudians and their non-Bermudian spouses when purchasing property. There is always more to be done, but we believe that by demonstrating value through leadership, consistency and accountability, with the strength of our membership behind us, The Chamber will continue to be a leading voice for economic development, growth and prosperity. A perfect fi t for imperfect times.
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Cheryl Packwood
CEO, Business Bermuda
Steven Rees Davies APPLEBY
Clive langley APPLEBY
MESSAGE FROM THE CEO
There is litt le doubt that 2011 was an eventful year for Bermuda and the entire international business world. The earthquake in Japan, the Arab spring, the debt debate in the U.S. Congress and the European debt crisis demonstrated once again just how interconnected the global economy is and the resilience of people all around the world.
As we enter 2012, I am fi lled with a new sense of optimism that we are turning the corner on uncertainty and that people are adapting to a world where events that may be physically far away have a real impact on them. Learning to deal with uncertainty and adapting are hallmarks of Bermuda’s people and our economy. After all, many residents are in the business of analysing, assessing and insuring risks and designing products that preserve and protect value when the unthinkable happens. At Business Bermuda, we ended 2011 with an eff ort by our board to focus on the organization, its strengths, weaknesses, goals and ambitions. We are continuing on in that strategic planning process and will provide updates to our members as our plans develop and further activities unfold. We are excited to welcome Mr. James Woolsey, the 16th Director of the U.S. Central Intelligence Agency, to Bermuda for our Annual General Meeting. Mr. Woolsey is a diff erent kind of speaker than we have had in previous meetings. He is not a political commentator or politician, but rather someone who has worked to understand risks, gather information and protect the world from any number of threats He has transitioned into the business world and brings that experience to bear in a manner that will off er insight and a global perspective on the risks and challenges facing the world today. His speech entitled, “Economic Tsunami to Come? Oil, the Failing Grid and the Middle East” will discuss the Arab spring, the challenge of being reliant on an instable part of the world for energy and the uncertainty this causes people and economies all over the world. And, he will relate all of that to Bermuda by off ering a message that focuses on challenges and opportunities for Bermuda to participate in the global economy. This will include the Island’s ability to recognize and insure risks around the globe, provide valuable fi nancial services to Asia, North America and Europe, the opportunity for Bermuda to embrace a more sustainable energy policy that sets an example for the rest of the world, and fi nally, our ability to be a provider of secure, reliable and safe global telecommunications infrastructure.
Business Bermuda will move quickly from the Annual General Meeting into an aggressive and active spring with events planned in London and Asia. As always, our eff orts are focused on building the Bermuda brand for international business, establishing an environment in key markets around the world that enhance the opportunities for our members in the legal, accounting, fund, fi nancial services and insurance industries to make connections and grow their businesses. We do all of this with the support, commitment and energy of government. It bears reminding that one of the greatest strengths of Bermudians is that as we board the plane to fl y wherever we are going in the world, we put aside our diff erences and operate in partnership with one another to help our jurisdiction grow and prosper. We are coming through a challenging economic time. Our opportunity is to work together to ensure that Bermuda not only sustains its competitive advantage, but builds on it.
The Companies Amendment (No. 2) Act2011 - “Unlocking the entrepreneurial zeal which rests at the very core of the Bermudian success story”
The Companies Amendment (No. 2) Act 2011 (the “Amendment Act”) became operative on 18 December 2011 having received assent from His Excellency Sir Richard Gozney KCMG, CVO, Governor of Bermuda.
Business Development Minister Wayne Furbert, addressing the House of Assembly, stated that “The purpose of the bill [the Amendment Act] is to amend the Companies Act to assist further unlocking the entrepreneurial zeal which rests at the very core of the Bermudian success story and shall be the engine which propels her exciting future”. This article briefl y looks at the core changes introduced by the Amendment Act and questions whether it achieves its above mentioned purpose. Without question, the Amendment Act represents the fi rst signifi cant amendment to the Companies Act 1981 (the “Act”) since 2006 and is a result of a comprehensive review of the Act undertaken by both the public and private sectors. It encompasses improvements inspired by the experience of those who work with the Act on a day to day basis whilst also adopting recent amendments to comparative legal systems onshore, which together, it is hoped, will enhance Bermuda’s edge on rival off shore jurisdictions such as the British Virgin Islands and Cayman. So what are the most important amendments that have been introduced?
SIMPLIFIED ADMINISTRATION With the growing use of corporate directors as an integral part of modern governance in international and cross jurisdictional corporate structures, the Amendment Act has removed the need for directors of Bermuda companies to be natural persons by expanding the defi nition of a director to include individuals, companies, partnerships and other associations of “persons” whether incorporated or unincorporated. It has also brought change to the minimum number of directors required to manage a Bermuda company from two individuals to one person. The Amendment Act further allows companies to dispense with holding AG Ms for any number of years by resolution of the shareholders. Each of these amendments has increased the fl exibility in convening meetings, executing documents and general transacting of business which will result in improved operational and administrative effi ciency and ultimately a reduction in related costs. TRANSFERS OF SECURITIES The Amendment Act has also simplifi ed the requirements that permit the electronic transfer of securities. The registration of a transfer of securities was formerly
C. Buchan
Emerging Asset Management Ltd. prohibited unless a proper instrument of transfer was delivered to the company or, in the case of securities listed or admitt ed to trading on an appointed stock exchange, the security was to be transferred by an agent (an “Appointed Agent”) approved by the Minister of Finance. The Amendment Act has abolished the requirement for an Appointed Agent and introduced an exemption from the need to deliver a writt en instrument for all transfers of securities listed or admitt ed to trading on an appointed stock exchange. The Act has been further amended to state that nothing in the Act or any rule of law shall operate to prevent securities from being transferred in accordance with the rules or regulations of an appointed stock exchange on which they are listed or admitt ed to trading. This amendment ensures that the requirements of the Act do not add to or interfere with the rules and regulations governing the transfer of securities listed on appointed stock exchanges. BUSINESS ACQUISITIONS The Amendment Act has introduced the familiar, but until now unavailable, concept of merger as a further alternative to the existing regime on amalgamation and other business acquisition models. Under Bermuda law an amalgamation provides for two or more existing companies to amalgamate into one company whereby the amalgamating companies neither cease to continue as before nor cease to exist, but instead continue with the other or others as a new combined and amalgamated company. All undertakings, assets and liabilities of the amalgamating companies vest in the amalgamated company without any one of the amalgamating companies being regarded as the ‘surviving company’. This model of business combination has proven, and continues to prove, to be very eff ective (particularly from certain tax perspectives). However, Bermuda has not, until now, provided for the concept of a merger whereby two or more companies merge and one of the merging companies is recognised as the ‘surviving company’ with the others having been absorbed by that surviving company. Bermuda companies may now merge with one or more Bermuda or foreign companies or corporations, but diff erent to an amalgamation, the undertakings, assets and liabilities of each merging company will vest in the one ‘surviving company’. Expanding the range of business combinations available provides Bermuda and foreign companies with increased fl exibility in terms of structuring international and cross jurisdictional acquisitions, takeovers, mergers and amalgamations. The Amendment Act has also abolished in its entirety the prohibition on fi nancial assistance. Bermuda companies were previously prohibited from providing any form of fi nancial assistance in relation to the purchase or acquisition of shares in itself, subject to a number of exceptions. This change has removed the costly and time-consuming eff ort that was often experienced when assessing whether or not a company was providing fi nancial assistance. This will be a further benefi t to many transactions involving the acquisition or restructuring of Bermuda companies in that the question of fi nancial assistance need not even be considered.
Finally the squeeze-out provisions for those looking to compulsorily acquire a Bermuda company have been enhanced. The Act already allowed a person that holds at least 95% of the shares or class of shares in a company to compulsorily purchase the remainder of the shares or class of shares in that company. Such person now has the right to deliver to the company an instrument of transfer executed by a person appointed by the purchaser for and on behalf of untraceable or uncooperative shareholders together with the consideration being paid for the shares. Such amendments provide additional certainty and security for those seeking to acquire a Bermuda company by way of compulsory acquisition. In conclusion, it is fair to say that the engine has been stoked. The Amendment Act has made signifi cant changes to the Act, bringing in measured and tangibly benefi cial amendments whilst retaining Bermuda’s reputation as a jurisdiction which prioritises the highest standards of corporate governance. These changes are a good example of how seriously Bermuda takes the matt er of being as att ractive as possible to international business in a global marketplace which is quick to change and where the competition looks to seize any advantage that it can. Bermuda will need to continue to make improvements to the Act, resulting in more frequent amendments to company legislation, if it wants to maintain this positive momentum. Minister Furbert is right; the Act is at the very core of Bermuda’s success and is an imperative component in assisting to propel Bermuda forward. • The Amendment Act has removed the need for directors of Bermuda companies to be natural persons by expanding the defi nition of a director to include individuals, companies, partnerships and other associations of “persons” whether incorporated or unincorporated. • The Amendment Act has also simplifi ed the requirements that permit the electronic transfer of securities.
• The Amendment Act has introduced the familiar, but until now unavailable, concept of merger as a further alternative to the existing regime on amalgamation and other business acquisition models. • The Amendment Act has made signifi cant changes to the Act, bringing in measured and tangibly benefi cial amendments whilst retaining Bermuda’s reputation as a jurisdiction which prioritises the highest standards of corporate governance.
Fawaz Elmalki Conyers Dill & Pearman Limited The recent uprisings in certain countries in the Middle East have highlighted the need for fund managers and investors in these countries to seek stable fund domiciles. They seek jurisdictions which off er eff ective legal regimes, tax neutrality, accessible and pragmatic regulators and experienced service providers that are responsive, timely and thorough. As one of the leading off shore fund domiciles in the world, Bermuda meets these requirements. Bermuda is a British Overseas Territory which has been self-governed since 1968. It has its own legal system which is based on English Common Law with rights of appeal to the Privy Council of the House of Lords in England. The principal corporate legislation, the Companies Act 1981, is updated regularly to keep pace with international commercial developments. It is internationally recognised as one of the leading off shore jurisdictions for investment funds. One of the principal att ractions of Bermuda is its reputation. It has been an established fi nancial centre since the 1930s and its client base includes a majority of the Fortune 500 companies. Bermuda has a free market economy and is tax neutral with no income, profi t or capital gains taxes. It is on the OECD’s “White” list and has signed tax information exchange agreements with all G8 countries and many others
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including India and China and it recently entered into a double taxation avoidance agreement with Bahrain. The Investment Funds Act 2006 and supporting regulations provide the legal and regulatory framework for the authorization, operation, regulation and supervision of investment funds in Bermuda. The principal regulator is the Bermuda Monetary Authority (“the BMA”). The BMA was established in 1969. It authorises, supervises, regulates and inspects investment funds operating in or from Bermuda. It is a full member of IOSCO. Bermuda has no legal or regulatory impediments to the off ering of Islamic investment funds. The Bermuda government has promoted the development of Islamic fi nance in Bermuda and there has been steady growth in the development of Shariahcompliant private equity funds, infrastructure funds and alternative investment funds domiciled in Bermuda, in addition to the traditional real estate funds. Shariah-compliant funds can be established in the same manner as conventional investment funds. The Shariah element essentially operates as an extra set of rules layered on top of the existing regulations that are aimed at a specifi c group of investors. The BMA last year issued Guidance Notes that facilitate the establishment of Shariah-compliant investment funds in Bermuda. The Guidance Notes apply to open-ended funds such as mutual funds and hedge funds. The Guidance Notes aim to recognise certain unique features of Shariah-compliant funds and provide guidance on a number of issues which these funds need to consider, including the appointment and role of the Shariah Supervisory Board, required disclosure in the fund’s off ering document (such as risk factors and confl ict of interest disclosure) and in the fund’s constitutional documents (such as investment restrictions) and notifi cation of material changes to the off ering document.
The Emerging Market Platform - A Shariah - Compliant Funds Solution
Recognizing the increasing number of emerging fund managers in the Middle East and the need for a cost-eff ective platform for these managers, Emerging Asset Management Ltd., a Bermuda incorporated investment manager, has established the Emerging Manager Platform.
The Emerging Manager Platform is a Shariah-compliant structure, established as an open-ended fund and a segregated accounts company which will be regulated by the Bermuda Monetary Authority. A segregated accounts company provides a legal structure for investment funds that allows the assets and liabilities of each segregated account, which can be set up as a separate sub-fund, to be legally segregated or “ring-fenced” from those of the other sub-funds on the Platform and from the fund’s general account. Each sub-fund may invest in the same or separate asset classes but it operates independently of the other sub-funds. The manager of each sub-fund is able to establish its own track record. This is important as a successful track record can provide the manager of the sub-fund with the credibility to subsequently launch its own independent fund. Each sub-fund on the Platform will issue a separate off ering document containing its specifi c investment objectives and restrictions. It will have its own fee structure, subscription and redemption terms and it may engage its own Shariah board or the Platform may engage one Shariah board. The Emerging Manager Platform off ers all the benefi ts of a regulated fund and a quick, fl exible and cost-eff ective way for managers with investment objectives and strategies that meet Shariah requirements to launch their funds in a recognised off shore jurisdiction without incurring the high costs and commitment of management time and resources required for the establishment of a stand-alone fund. Conclusion
Bermuda is committ ed to att racting international business by off ering political and economic stability, a legal system based on the common law, sophisticated professional service providers and an effi cient regulatory system for the investment and fi nancial services industry. Identifying a stable and cost-eff ective domicile which welcomes Islamic fi nance is important for an emerging manager who wants to establish a Shariah compliant fund. The Bermuda-domiciled Emerging Market Platform off ers an innovative new structure for such managers which provides them with a quick, fl exible and cost-eff ective way to launch their funds.
THE BERMUDA STOCK EXCHANGE: STRENGTH-TO-STRENGTH
2011 has been an exciting year at the Bermuda Stock Exchange (BSX). Here, BSX President and Chief Executive Offi cer Greg Wojciechowski tells how his mission to position Bermuda as a leading jurisdiction for the sett ing up and listing Insurance Linked Securities (ILS) has been paying off , as the Exchange now boasts $3 billion of these listings. 2011 has been an exciting year at the Bermuda Stock Exchange (BSX). Here, BSX President and Chief Executive Offi cer Greg Wojciechowski tells how his mission to position Bermuda as a leading jurisdiction for the sett ing up and listing Insurance Linked Securities (ILS) has been paying off , as the Exchange now boasts $3 billion of these listings. 2011 was the year that Bermuda made its mark and solidifi ed its position as a leader in servicing Insurance-Linked Securities (ILS) structures. While the island has been acknowledged as a centre of excellence for reinsurance for some time, att racting ILS structures such as catastrophe bonds to use Bermuda vehicles was lagging. As the world’s third largest reinsurance market, home to 1400 insurance companies with total assets of $442 billion, intuitively we could see that Bermuda was a natural place for establishing and listing ILS structures. In fact, many of our reinsurance companies had issued cat bonds or set up special purpose vehicles such as side cars, thus Bermuda had deep experience and knowledge in this area. What it took to launch Bermuda as a more att ractive domicile for ILS structures – and listing location – was a change in regulation. Spearheaded by the Bermuda Monetary Authority in consultation with domestic and international industry participants, regulatory changes were enacted in October 2009 that streamlined the process for the incorporation of ILS structures, expediting the time for these structures to get to market. In essence, the amendment brought in 2009 applied to Class 3 insurance incorporation legislation and clarifi ed the rules for creation of these special purpose vehicles, made their creation straightforward, and signifi cantly reduced the time it took to get these vehicles to market. The regulatory changes established a new designation of ‘special-purpose
insurers’ (SPI) as part of the Bermuda Monetary Authority’s licensing and supervisory framework. This change has been a very positive step in encouraging SPI’s to set up in Bermuda. The timing, it seemed, was ideal as alternatives to traditional reinsurance capital formation grew coupled with investors looking for exposure to an asset class that was not correlated with the broader capital markets. It appeared that we had prepared and positioned Bermuda and the BSX in the right way at the right time. Team Bermuda went on roadshows, holding a variety of meetings in New York, London, Canada and around the globe to re-acquaint the markets with Bermuda and these changes – and it has really paid off . The BSX has been promoting the fact that listing securities on an internationally recognised stock exchange such as the BSX makes the securities signifi cantly more att ractive to potential investors, such as pension and dedicated funds, and have been encouraging companies to set up not only structures such as cat bonds here, but also to list them on the exchange. 2010 was a signifi cant year for us in that we were successful in establishing name recognition in this space, and in July 2010, the BSX announced it had cat bond listings valued at over $1 billion for the fi rst time. In 2011, we saw continued traction. The BSX again broke its record for ILS listings, reaching the milestone of $2 billion, and then, for the fi rst time, reaching over $3 billion in listed securities by the end of 2011. Twenty fi ve ILS listings with a total value of $3.373 billion were listed on the exchange as of December 31, 2011. The BSX’s 25 listed insurance linked securities were made up of: four securitization programs, 13 notes issued pursuant to these programs, six notes issued as stand-alone securities, and two specialist exchange trade fund classes. In the same year, the exchange marked its 40th anniversary and saw the investment in the BSX by the TMX Group, the owners of the Toronto Stock Exchange. We really do feel we have achieved a great deal in the last two years in the ILS space. The SPI designation has been very successful. According to the Bermuda Monetary Authority, 23 special-purpose insurers had been formed in Bermuda by 31 December 2011, and the majority of these formations were for side cars, while others had been created to issue catastrophe bonds. In 2010, 10 were formed during the whole year. In January 2011, Chartis, the property and casualty insurance unit of American International Group, listed a $450 million catastrophe bond through Compass Re on the BSX. Munich Re gained extra capacity through Queen Street IV Re’s issuance of a $100 million BSX-listed catastrophe bond in November. The last ILS to list in 2011 was Lloyd’s insurer Amlin’s fi rst cat bond, the $150 million Tramline Re, on December 22. At the Exchange, we are looking to provide capital market support to the developing ILS market segment.. Institutional investors such as pension and dedicated funds are interested particularly in ILS because of the low correlation between ILS and capital markets. ILS are a natural hedge to capital markets, and listing on the exchange gives them more security and visibility, which investors are seeking especially in times of high market risk periods. And as we move forward into 2012, indications are that interest in catastrophe bonds will continue and issuances will be met in the market with similar take up. We have developed critical mass in respect of listings and incorporations in Bermuda and atrack record for quick turnaround times for sett ing up SPIs and cat bonds, so we expect to be even busier this year.’ What is a catastrophe bond ? Catastrophe bonds enable insurers to raise capital through the transfer of insurable risk for events such as hurricane or earthquake damage via capital market vehicles. They have been popular with investors, while their prices have remained att ractive for sponsors of the bonds.
TMX Group Makes Investment in The Bermuda Stock Exchange
TMX Group Inc. (TMX Group) and Bermuda Stock Exchange (BSX) announced in December 2011 that TMX Group has purchased a 16% minority stake in the BSX. TMX Group is now one of the largest shareholders of the BSX, and Tom Kloet, CEO, TMX Group, will be joining the BSX board of directors. Stirling, Marketing Director of Business Bermuda joined Mr. Kloet to open trading on Toronto Stock Exchange. The announcement comes at a time of increased business activity between Bermuda and Canada. Most notably, a Tax Information Exchange Agreement was signed between the two countries earlier this year, eff ective July 1, 2011. In addition, the BSX gained recognition as a Designated Stock Exchange under Canada’s Income Tax Act, eff ective October 31, 2011. ”This investment represents TMX Group’s commitment to looking beyond Canada for opportunities,” Mr. Kloet said. “BSX and TMX Group both have a culture of continually striving to innovate and off er our clients enhanced products and excellent customer service. I am certain we will be well aligned as we consider future initiatives together.” Mr. Wojciechowski added: “I’m delighted to welcome TMX Group as a BSX shareholder and Tom Kloet to our board of directors. Canada and Bermuda share a long history and important jurisdictional ties, this strategic investment can only strengthen this long standing relationship. We look forward to exploring new avenues of economic development and mutually benefi cial cooperation in our domestic and international capital markets.”
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Themis Law Chambers
P. O Box Hm 695
Hamilton HM CX
Hamilton
Bermuda
Telephone: 1(441) 298-0181 zdaniels@tlclawonline.com www.tlclawonline.com
Bermuda – Moving with the Times to Stimulate the Economy
As one of the smallest countries in the world, Bermuda lies about 650 miles east of the USA. The capital, Hamilton, houses some of the world’s largest international companies and corporations who have chosen Bermuda as their off shore domicile – for good reason. In addition to a democratic government, low personal and corporate taxes, Bermuda’s international business economy is highly developed and is one of the world’s largest exporters of fi nancial services – primarily insurance, reinsurance and investment funds.
While the threat of a global recession loomed in 2008, several predictions were made as to whether Bermuda would follow suit. However, while focused on the global recession and the impact on the local economy, Bermuda failed to carefully consider the negative implications their own policies and legislations were having on their international business sector. Furthermore, the problem no longer appeared to be the spiral eff ects emerging from a global perspective but was now just specifi c to Bermuda. As a result, the international business sector has lacked confi dence on many levels and has sought to do business elsewhere, thereby driving Bermuda into a recessionary state parallel to that of the USA.
However, all is not lost! Bermuda is aware of the negative impact some of these restrictions have had on the local economy – in particular, the rule that requires any company in Bermuda doing business locally to be owned 60% by Bermudians. This 60/40 restriction was put in place to preserve Bermudian resources in terms of business ownership, and certainly, where the government deems fi t they will continue to do so. However, they believe that in today’s economic climate, Bermudian companies would fi nd it easier to raise capital in the global markets if the investors could have a controlling interest. Recognising that the traditional ways of doing business can no longer apply, for Bermuda this is stimulation at its best. Going forward, local businesses will now have the opportunity to raise capital from foreign investors, who in turn will benefi t by having control in relation to their investment. It is hoped that this discretionary relaxation of the rules will welcome new businesses to the island.
With a fl exible approach, well aligned with current global business trends, Bermuda is changing the way they att ract foreign investment. For a laidback island paradise steeped in pure relaxation, the time to act is now.
The Rise of the Insurance Linked Securities Market
The perfect storm of tepid global growth, volatile markets and historically low interest rates has pension funds and other institutional investors desperately searching for a way to generate meaningful returns. More and more of these investors are turning to insurance linked securities (‘ILS’) as a potential solution.
ILS are securities or contracts which provide a rate of return depending upon the non-occurrence of defi ned catastrophic events such as hurricanes or earthquakes. Typical ILS include Catastrophe Bonds (‘Cat Bonds’) or a portfolio of collateralised reinsurance contracts. The ILS market provides (re) insurers with an additional risk-transfer mechanism, investment managers with an additional service off ering to grow assets and investors with a compelling alternative investment proposition uncorrelated to the markets, interest rates or the global economy. Home to several of the world’s largest reinsurers, Bermuda boasts a long investment fund history. As a result, the island is ideally suited as a jurisdiction in which to establish and service an investment fund devoted to investing in ILS. However, despite its att ractiveness, this asset class also comes with its own challenges. Matching fund liquidity to the investment cycle of the underlying ILS portfolio is diffi cult, particularly if a catastrophic event occurs which results in the impairment of a portfolio asset. Traditional fund mechanisms for restricting liquidity, such as lock-up periods and gates, generally do not work well in the ILS fund context. This has given rise to innovative solutions, such as the ‘slow pay’ redemption provisions, which are bett er suited to the asset class and provide investors with more certainty. Side pockets can also be used to eff ectively segregate impaired assets from the main portfolio to ensure that new investors do not participate in any previously impaired assets. However, their use does raise other issues, namely their impact upon performance fees. Several options have been devised in order to strike the appropriate balance between the interests of investors and managers. Analysing each and choosing the most appropriate method for the particular type of fund is an important element of fund structuring. The key to successfully navigating such challenges is to engage experienced service providers who are not only well versed in the specifi c nuances of the asset class, but can add real value when structuring the fund vehicle. Fund managers who want to make a good fi rst impression with investors, need to have thoughtfully considered the various options in the fund design, and be able to articulate why a particular option represents the best investment alternative.
Prime Management is a Bermuda-based hedge fund administrator which has a dedicated service team who has been focused on servicing the specialized and evolving requirements of investment structures, sponsors and managers in the ILS market for the past 10 years. Prime Management Limited John Whiley Head of ILS Fund Administration
Tel: (441) 295-0329 ext 512
johnwhiley@primebermuda.com www.primebermuda.com
Michelle Wolfe, CA Managing Director Meritus Trust Company Limited 8 Par-la-Ville Road Mintfl ower Place, 2nd Floor Hamilton HM 08, Bermuda
Tel: +441 405 9870 Fax: +441 405 9871 info@MeritusTrust.com www.meritustrust.com
Meritus Trust Company Limited – Providing Unparalleled Fiduciary Services in Bermuda
“Each man is capable of doing one thing well. If he att empts several, he will fail to achieve distinction in any.” Plato As a jurisdiction, Bermuda is recognised for being a worldwide leader in providing premium off shore trust services. Based on English common law and the doctrines of equity and acts passed by the Bermuda legislature, the legal system is uncomplicated and free of the cumbersome restrictions imposed by the excessive legal, supervisory and regulatory restraints found in other countries.
Meritus Trust Company Limited is an independent trust company based in Bermuda. Founded in 2010, we have one simple objective – to provide unparalleled fi duciary services to a select group of international families and charities.
Our People
Meritus Trust is the nucleus of the trust, accounting and legal profession in Bermuda. Our founders have att racted and retained the best of the industry, surrounding themselves with a team that shares the same passion for providing superior trustee services. While bigger institutions may sometimes have diffi culty with the ‘revolving door’, we hand select each member for a long-term career. We also provide a collegial, supportive and stimulating environment, which makes it easy for our staff to love what they do and excel. Even our families can see that our team enjoys going that extra mile to exceed their expectations. As we are completely independent of banks, investment managers, legal and accounting fi rms or other institutions, we bring a fresh new perspective to the industry in Bermuda. We do this by providing pure fi duciary services that are completely free from any real or perceived confl ict of interest.
While we have a comprehensive network of professional service providers, our model facilitates a cost eff ective solution for most families who have their own professionals providing legal, accounting, investment, family offi ce or other services.
Our Speciality
Bringing together over 100 years of trust and fi duciary experience, our talented team specialises in trustee and protector services, administration for private trust companies, family offi ce services, company administration services, as well as education and governance.
Our Technology
Meritus Trust uses technology to deliver a superior product, quicker and less expensive than ever before. The fi rm utilises Microgen’s 5Series (a cutt ing-edge trust and company administration platform) and a SharePoint based portal that employs state-of-the-art security/ encryption. They also use technology designed to improve effi ciency, including OCR software, speech/handwriting recognition and document assembly.
