Bermuda's new 15% corporate income tax rate, effective in January 2025, is not expected to diminish the island's standing as a global insurance and reinsurance hub.

Companies domiciled in Bermuda previously paid zero corporate income tax, but the Corporate Income Tax Act 2023, passed in December that year, will apply 15% tax to multinational enterprises with €750 million or more in annual revenues. The change brings Bermuda in line with pillar 2 of the OECD's global anti-base erosion model rules, designed to ensure global corporations pay a minimum level of income tax in the countries where they operate.

While the shift to 15% taxation from zero might be considered a big turn-off for the insurers and reinsurers based in Bermuda, the effects are expected to be minimal. "At the margin, there may be some shift of business to different jurisdictions. But I think by and large, the companies that are in Bermuda and focused on Bermuda will likely remain that way," Douglas Baker, a director at Fitch Ratings, said in an interview.

Attractions beyond tax

Bermuda is now well established as an international insurance and reinsurance center, after beginning its journey in earnest in the mid-1980s with the formation of companies such as Ace, now part of Chubb Ltd., to tackle a capacity shortage in the US excess liability market. Since then, several waves of reinsurers have been set up on the island after market-changing events such as 1992's Hurricane Andrew, the September 11, 2001, terrorist attacks and hurricanes Katrina, Rita and Wilma in 2005. Bermuda is home to several prominent life insurers and reinsurers, such as Athene Life Re Ltd. and Resolution Life Group Holdings Ltd., and Dutch life insurance group Aegon Ltd. redomiciled there in September 2023 from the Netherlands. Even if their main operations are not domiciled on Bermuda, many international insurance groups have a presence there.

On the property and casualty side, 25 of the Association of Bermuda Insurers and Reinsurers' 31 members collectively wrote more than $171 billion of gross premium in 2023, according to a member survey by the association. Gross written premium for Bermuda's life and annuities insurers and reinsurers was $134 billion in 2022, according to a 2024 analysis by the Bermuda Monetary Authority.

Bermuda is considered a reciprocal jurisdiction by the US National Association of Insurance Commissioners and an equivalent third country under the European Union's Solvency II insurance capital regime.

While the island's lack of corporate income tax may have been a big lure for startups initially, the established regulatory framework, solvency regime and pool of insurance expertise are equal, if not greater attractions.

"Bermuda is going to remain a sophisticated regulatory regime with a good amount of talent on the island in the insurance space. And that coupled with the fact that it's a reciprocal jurisdiction to the US as well," Baker said.

Some companies are also clear that the zero corporate tax rate is not Bermuda's key attraction for them. Among them is Convex Group Ltd., an insurer and reinsurer established on the island in 2019. "Tax optimization is not really the core strategy of Convex," Paul Brand, CEO of Convex, said in an interview in September 2023, shortly after the Bermudian government had published its first consultation on the planned tax change.

"We like being in Bermuda because we think it's well regulated. We like being in Bermuda because it's a core market for reinsurance business. Those things won't change because we're paying corporation tax or not."

Softening the blow

Bermuda's insurance market has already weathered a potentially bigger tax-related challenge following the introduction of the Tax Cuts and Jobs Act (TCJA) 2017 in the US. This law cut the US corporate tax rate to 21% from 35% and introduced the Base Erosion and Anti-Abuse Tax (BEAT) — essentially a minimum tax level on profits US-based companies move to affiliated offshore companies in a bid to reduce their tax bill. This includes US-based insurers ceding business to affiliated offshore reinsurers.

For those that are now paying US taxes, either through the BEAT or by setting up a US-taxable subsidiary, the new Bermuda tax will be "somewhat of a wash," Baker said.

With the US-Bermuda tax benefits already reduced by the TCJA, there is now more emphasis on Bermuda's other attractions. "The tax impact is somewhat muted in the face of the other benefits, particularly the more economic reserving framework relative to US statutory accounting," Baker said. "I think that will continue to be a primary driver of companies looking at Bermuda."

There are also some offsets in the rules that will soften the blow of the new 15% rate. Transition measures in the Corporate Income Tax Act enable insurers and reinsurers to establish deferred tax assets which they can use to reduce their tax bill over the next 10 years. Athene Holding was able to set aside a $1.76 billion deferred tax asset, and Arch Capital Group $1.20 billion. Athene Holding redomiciled to the US from Bermuda on Dec. 31, 2023, but the company will use the deferred tax asset to reduce the tax bill of Bermuda tax resident subsidiaries, according to its 2023 Form 10-K filing.

Setting up deferred tax assets is not limited to groups headquartered in Bermuda. Chubb, which has a large presence on the island, recognized a $1.14 billion one-time tax benefit in the fourth quarter of 2023 related to the new Bermuda tax law and a further $55 million in the first quarter of 2024. Germany-based global reinsurer Hannover Re, which has two Bermuda subsidiaries, recorded a one-off tax benefit of about $200 million in the fourth quarter of 2023, which will reduce its Bermuda tax bill by $20 million a year over the next 10 years.

The new rules also allow certain groups containing Bermuda-based companies to defer the start of tax payments for up to five years under certain conditions. These include if the group is based in six or fewer countries and if the group has less than €50 million of net tangible assets outside the country where most of its assets reside. For example, White Mountains Insurance Group, Ltd. and Hamilton Insurance Group have said they expect to qualify for this deferral.

There may be further benefits to come. Bermuda's government said it plans to introduce certain tax credits as part of the new regime "to support Bermuda's economic goals and maintain the global attractiveness of the jurisdiction."