ROUNDTABLE: BERMUDA’S ECONOMY
Q2: WHERE ARE THE OPPORTUNITIES FOR BERMUDA IN THE POST-COVID WORLD?
“Growth is happening in every line of business.”
Roland Andy Burrows
Burrows: Greg talked about ILS, capital raising and new startups—and we are excited about them coming to the Island. We are also aware that the government is working on some new legislation that is going to have an impact on high net worths and family offices. It is likely that this will go through shortly, so people who are investing can also start thinking about coming here.
Others are using the domicile to move assets and create new opportunities for themselves. Once people are on the Island, they tend to wonder why they haven’t been here before. They want to know how they can set up, live, work and enjoy themselves here with everything that is on offer.
Growth is happening in every line of business—the only challenge we face is how to make it even easier for people to come to the Island in the current circumstances. All the stakeholders I have been talking to recently are seeing growth in their businesses: new opportunities are arising, and referrals are coming to the Island in greater numbers.
We must accommodate growth, and we are doing that, but there are some infrastructure issues that we have to address and modernise if we are to take full advantage of the opportunities available—some of them are legislative, some relate to technology.
We are also seeing growth in the ESG space. People are looking at that side of things, and we need to make sure that we are sending the right messages to the global community about where we stand as a country and what we have to offer as it relates to sustainability and sustainable investing.
In short, I have a positive view on growth and how we can continue to facilitate and accommodate that growth.
“We need to find ways of attracting many more people.”
Thresh: These are all great initiatives, but they are not going to move the dial in terms of repairing our balance of payments or reducing our government debt. I don’t want to be a naysayer, I am hugely positive about Bermuda, but we need to find ways of attracting many more people and putting more bums on seats.
We have been the beneficiaries of a hardening market and the arrival of new startups. The key question is how many people they bring with them, and how can we make the case for much larger-scale head offices in Bermuda when everyone else is in a lower-cost jurisdiction.
There needs to be a compelling case for businesses to move to Bermuda. In the end, it’s all about a close partnership between government and business, about what is sustainable. What can business tolerate in terms of expense loading and the tax burden?
There are good reasons why international business is here, but there is a tipping point beyond which companies cannot afford to keep people on the Island—especially when they have international shareholders who look at expense ratios.
We need to make sure that the cost of doing business in Bermuda is justifiable—and volume helps. The more people that are contributing to the economy, the lower the per-head tax. Anything we can do to liberalise our borders in terms of getting more people here is bound to be good for business.
If we can demonstrate the positive economic impact of more people being here, then maybe the public will accept a slightly more liberal immigration policy—so that it becomes politically acceptable to have 5,000 more people here in Bermuda, rather than only 500.
“We are benefiting because people can be outdoors and enjoy the fresh air.”
Burrows: If the government doesn’t want to increase taxes, there needs to be more people on the Island. The government of course needs to consider the cost of more immigration and the cost of not doing it.
Clearly it is not sustainable to continue spending money without any source of revenue coming in. If you are not going to tax the Island’s residents, that means attracting and welcoming in more people from elsewhere.
MacIntyre: Bermuda needs the kind of shot in the arm it had with the America’s Cup in 2017, but it also needs companies to drive the headcount, the use of services, restaurants and so on. At the moment, we are benefiting because people can be outdoors and enjoy the fresh air—it’s the health connection.
Once a vaccine is available and people feel that they can return to their homes, interest in coming to Bermuda may wane. We need to figure out a way of ensuring that Bermuda is a permanent draw for visitors.
Cooper: The government has been particularly good at short-term decision-making over the past year, but how do we develop on these advantages and make the positive impacts systemic?
How does the government encourage businesses to come to the Island and stay for the long term?
Wojciechowski: They say you should never waste a good catastrophe, whether it is a global financial crisis or a pandemic. I am encouraged by the tone and the tenor coming out of government in terms of immigration reform.
It is a highly emotive subject, and something that has always been a speed bump for this country. However, the government understands the revenue side of the balance sheet and there being limited ways of bringing additional money into this country.
We are relying on international business and we can promote other innovative ideas, but sustainability comes down to the number of people who are generating revenue for the government.
“How does the government encourage businesses to come to the Island?”
I have been encouraged by the discussions around immigration. While there may not be clearance for 5,000 people, it is our job as business leaders to continue to build the story of Bermuda.
There are inherent friction points such as costs, but Bermuda has been hugely successful being placed, very neatly, between two of the deepest capital markets and insurance markets in the world.
If Bermuda can continue to innovate in the financial services industry (including insurance and ILS), we will be OK.
At the moment, the BSX has a record number of listings in ILS. Despite a skeleton staff in the office, we have had a record year with about 94 percent of the global market cap outstanding of all ILS issuance listed in Bermuda.
We must continue to work together to create an environment that is conducive to innovation and bringing new business to the Island.
Another potential growth area is the digital asset space—cryptocurrency. Our new owners at the BSX are focused on this developing business and we must look at how we continue to innovate and evolve our offering as a domicile.
While we stay on the right side of regulatory standards, other jurisdictions that we compete with are having to face more significant challenges. This pandemic is a disruptor that will sharpen our focus, so we can fully determine what our value proposition is once again.
Huff: The next big economic pillar for Bermuda is not a new pillar, it is a related pillar. Many of the things we do well are connected, from captives to ILS to traditional insurance and reinsurance.
People say we need another golden goose, but we could simply make our current goose fatter. There are tremendous opportunities in three key areas.
First and foremost is climate change. President-elect Joe Biden’s victory in the US Presidential election will change the approach to climate with our largest global trading partner. >>
“We could simply make our current goose fatter.”
<< The US federal reserve has said it is going to start a conversation about what climate means in terms of systemic risk. Those are opportunities for the Bermuda market because our legacy work of managing natural catastrophe risk in many ways positions Bermuda as a leader in managing climate risk.
Second, there is cyber risk. The book has not yet been written on cyber risk management and regulation, but COVID-19 has taught us there is more risk globally than we first imagined.
The regulations have not been documented and the aggregation methodology of risk has not been calculated. It is a great opportunity for companies who are doing these things correctly.
The third issue is capturing legacy run-off business, which is the hottest new thing in insurance and reinsurance right now. It’s a capital management tool that allows existing companies to shed books of business.
Companies and startups using these tools are very sophisticated—they are well capitalised and it is going to be a strong area for Bermuda. Again, it is a related pillar, not a new pillar.
Wojciechowski: The other issue of focus for me is environment, society and corporate governance (ESG) factors. This is going to be a big thing over the next five to 10 years and we are focused on it at the BSX. With some ILS structures having demonstrated ESG-compliant features as securities, we can begin to unlock a new global demographic of investors with a focus on sustainability and driving a new source of capital into an already interesting and evolving market.
The history and story of Bermuda is strong and compelling, we just need to articulate it in the right way.
“The one thing that is under our control is the cost of government.”
Huff: We were climate-aware before climate was cool. We were the original conservationists. And I was so thrilled to hear that the Bermuda government’s first capital improvement project coming out of COVID-19 will involve taking advantage of our bountiful sunshine to provide solar power for government buildings.
It is a great project for Bermuda, and it is a great project for our global messaging.
Fagundo: When we look at government over the last nine months or so, part of its strength has been its relationship with the business community, with the Chamber of Commerce, with representation on the various committees and boards that are helping to shape strategies and make decisions.
Now that we are starting to see the economic impact of decreased revenues and increased debt load, it is particularly important for the government to recognise the single biggest contributor to the cost of living is the burden of paying for government.
While many aspects of that cost structure are external—be it importing food or importing fuel for energy—the one thing that is under our control is the cost of government.
It is very easy to say that Bermuda is expensive, but when you compare that to a big city such as London or New York, it is not as expensive as it might seem—which is important when people are choosing between Bermuda and another jurisdiction.
MacIntyre: The word “expensive” crops up when you are not getting value for your money. We have international clients who come here and remark that food is pricey, or service is substandard. But this is a mindset.
We want people who are eager to have a job and become ambassadors for Bermuda, so that they can deliver high levels of service. If not, you get complaints.
“We need to enhance our existing platform for doing business.”
Roland Andy Burrows
Fagundo: Focusing on the positive side, we have a beautiful product—and we can provide value. As the government moves forward, it is vital to bear in mind the role that it plays. There have been discussions about a more robust unemployment system and much has been made of downsizing government.
In fact, those two things go hand in hand, and you can finance a more robust social safety net that works for everybody—provided its development runs in tandem with rationalising the civil service and focusing on process improvements.
In turn, that should create a better service to the business community by making all interactions with government predictable and therefore faster.
Burrows: Infrastructure is part of the problem as well. We need to enhance our existing platform for doing business and move towards something that is technology-based. If we can get the infrastructure and the connectivity right, that would be important.
The Bermuda story is fantastic, but I think future growth is dependent on changes to the infrastructure or the modernisation of that infrastructure.
“I am sure we all know people who used to live in big US conurbations.”
Wilson: We are seeing business as usual in my field, which means that companies are borrowing and taking action to advance the capital markets. Companies are acquiring other companies, and they are looking to position themselves ready for the time when the economies re-open without any restrictions.
Most of my clients in the US—and even in Europe—are now working from home. In Bermuda, there was a time when you only worked from home out of necessity, but that is changing.
Although the focus has been on getting people here and growing the economy, we must not forget that thousands of workers are already living and working here very successfully. For them, the question is what does a new work environment look like?
Also, why would people want to come to Bermuda right now? In the pandemic world there is a move towards the depopulation of urban centres. I am sure we all know people who used to live in big US conurbations but are now moving out to Pennsylvania, Connecticut, or other destinations away from the big cities.
Bermuda is also an option. It is close enough by time zone and by connections to the eastern US and has strong links to Europe too.
As the world evolves, I am not sure whether there will be a huge rush back to those urban centres. That is very hopeful from a Bermuda perspective, but the key point is that the government needs to be creative in its thinking. >>
<< It will need to take risks and put in place policies that are friendly towards those who are already living here, but also friendly to those who would like to come here and contribute to our community.
That is going to be important for the next 18 months or so. From my perspective, we are still seeing a lot of incorporations and structures being put in place (some of them relating to ILS). There is also optimism because companies have seen that COVID-19 is not necessarily a death knell to their businesses.
They have been able to move to online operations where necessary and have continued to service their customers. People are continuing to spend but they are simply changing their habits to suit the current climate.
If you look at the markets, most of the stocks that are performing well have some component involving people doing stuff from their homes. Or they are pharmaceutical stocks and things of that nature.
I think that optimism trickles down to our business and what we are doing too. It is a question of harnessing that energy and optimism so that we can plan.
That is going to be key for us as a jurisdiction, both in government and in the private sector—each acknowledging the role that the other has to play.
“Government does not create revenue or jobs.”
Wojciechowski: Bermuda is a small country and the government is still learning. It has never been challenged with a global catastrophe or an economic impact on this scale in recent history.
This is a ‘work in progress’, and we are not going to come up with all the answers overnight, but there must be a collaborative approach. From my experience of working with this current administration (as well as previous administrations), the government of this country understands where revenue is generated.
I also think that the government has a lot of respect for the professionals who operate in the different international business industry segments here.
There is a level of trust stemming from all the things that have been accomplished here including getting recognition from the NAIC in the US on our insurance supervision standards, becoming a full member of the World Federation of Exchanges, and having a seat on the international regulatory table on the BMA side.
I believe there is an inherent level of trust here between those who operate businesses, the policymakers and the government. And I think the industry understands that government does not create revenue or jobs. >>
“Bermuda provides a large amount of support globally to countries in their times of need.”
<< Government has to be mindful of the circumstances that create a conducive environment for all business to flourish, and that has to be balanced against the community’s desires and wishes—and in a smaller country, those desires and wishes become amplified and that translates into votes.
As I have said before, never waste a good catastrophe. It gets people focused on how to create innovative new solutions.
Bermuda provides a large amount of support globally to countries in their times of need, and it has not stalled in terms of solutions for development and innovation. Whether it is the captive insurance market, prominence in P&C or ILS, there is no doubt in my mind that there are enormous opportunities ahead.
ILS is an indication of what’s to come when you start to see securitisation and transferring of risk. The global capital markets become highly interested in consuming that risk and the global insurance market can utilise this capital to narrow the global protection gap.
If we look at this through the domestic lens, we will always have challenges—every country does.
However, one of the things that gives us a tremendous tailwind is that we have decades of experience in specific and niche areas. That experience has given us the expertise and credibility to operate on a global scale—so our challenge is to leverage those attributes, drive innovation forward and keep Bermuda relevant in a changing world.
“We are sometimes harder on ourselves than the record reflects.”
I would have a quite different approach if I were sitting in a jurisdiction that did not enjoy our legacy and world-class reputation. In short, the global capital markets have demonstrated that participants are quite comfortable with Bermuda. It would be genuinely concerning if we did not have a seat at those tables. But we do.
We must act maturely and continue to send out a message that Bermuda is managing this crisis. We also have to work hard and work together locally to ensure continuity, but we have the fuel and the capacity to move through these challenges.
Sometimes politics and democracy are not pretty, but we can deal with that. I believe we are going to come out of this in a stronger position because I do not see any of our competitors managing the situation as convincingly as Bermuda has done.
Huff: Bermuda deserves more credit for the stability of our government. If you look around the world, there is a tremendous amount of instability in the UK as they go through Brexit and some of their political challenges, while the post-election situation in the US is well documented.
In Bermuda, we have a strong government and a clear majority from the October 2020 election. Now it is our job to engage with that government for the benefit of the whole Island. We are sometimes harder on ourselves than the record reflects.
Image courtesy of Shutterstock / Jose Alcaide Fotografo