Bermuda's 15% corporate tax unlikely to impact re/insurance hub status

Bermuda’s 15% corporate tax unlikely to impact re/insurance hub status – S&P | Insurance Business Canada

Reinsurance

Bermuda’s 15% corporate tax unlikely to impact re/insurance hub status – S&P

The island’s strong regulatory framework will retain re/insurance firms

Reinsurance

By
Kenneth Araullo

Bermuda’s new 15% corporate income tax rate, set to take effect in January 2025, is unlikely to diminish the island’s status as a global hub for insurance and reinsurance, according to insights from S&P Global Ratings.

Previously, companies based in Bermuda paid no corporate income tax, but the Corporate Income Tax Act 2023, enacted in December, will apply a 15% tax to multinational enterprises with annual revenues of €750 million or more.

The measure aligns Bermuda with the OECD’s global minimum tax framework under pillar 2, aimed at ensuring that multinational companies pay a baseline level of income tax in the countries where they operate.

Despite the shift from a zero-tax rate, the effects on Bermuda’s insurance and reinsurance sector are expected to be limited. In its report, S&P noted that while some businesses may shift to other jurisdictions, Bermuda’s established companies are likely to remain due to factors beyond tax incentives. These include a well-developed regulatory environment, a strong solvency regime, and an experienced insurance workforce.

The island’s reputation as an international insurance center, which began in the 1980s, continues to attract companies seeking access to its regulatory framework.

The Bermuda Monetary Authority reported that in 2023, 25 members of the Association of Bermuda Insurers and Reinsurers collectively wrote more than $171 billion in gross premium for property and casualty insurance. In the life and annuity sector, gross written premium amounted to $134 billion in 2022.

S&P highlighted that Bermuda’s advantages extend beyond taxes, citing its recognition by the US National Association of Insurance Commissioners as a reciprocal jurisdiction and by the EU as equivalent under Solvency II.

Some companies, such as Convex Group, have indicated that Bermuda’s tax policies were not the primary reason for establishing operations on the island. Convex CEO Paul Brand said that the company values Bermuda’s regulatory standards and its role as a key market for reinsurance, regardless of the introduction of corporate tax.

Bermuda’s insurance sector has already dealt with significant tax-related changes, including the US Tax Cuts and Jobs Act (TCJA) of 2017, which introduced the Base Erosion and Anti-Abuse Tax (BEAT).

These affected US insurers ceding business to offshore affiliates, reducing the tax advantages associated with Bermuda. S&P observed that the new Bermuda tax is “somewhat of a wash” for firms already subject to US taxes under BEAT, as the island’s other benefits continue to appeal to companies.

The Corporate Income Tax Act includes provisions to ease the transition to the new tax rate, such as allowing companies to establish deferred tax assets to offset tax liabilities over the next decade. For instance, Athene Holding set aside a $1.76 billion deferred tax asset, while Arch Capital Group established a $1.20 billion asset.

These deferred tax assets are not restricted to Bermuda-headquartered firms, as Chubb and Hannover Re have also recorded significant tax benefits related to the new law.

Additionally, some companies may qualify to defer the start of tax payments for up to five years under certain conditions, such as having operations in six or fewer countries or possessing less than €50 million in net tangible assets outside the primary jurisdiction.

White Mountains Insurance Group and Hamilton Insurance Group expect to qualify for this deferral, according to S&P.

The Bermudian government has indicated that further measures may be introduced, including tax credits designed to support the island’s economic goals and maintain its appeal as a global business destination.

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