Although Bermuda made its name as a travel destination, over the past 60 years, the Island has developed into and is home to the world's premier centre for international business.

More than 10,000 international companies and partnerships are registered in Bermuda, including subsidiary operations of more than three-quarters of the Fortune 100 largest companies in the United States. Bermuda's commercial insurance and reinsurance market now ranks alongside those of New York and London, with a capital base in excess of $42 billion and gross annual premiums above $20 billion.

Bermuda's political and economic stability and first-class legal, banking and accounting support services are the hallmarks of its International Business industry. With a world-class business and telecommunications infrastructure, Bermuda provides less complex, less bureaucratic operating conditions for its international business clients. A unique partnership of government and private sector interests works together to foster an environment attractive to corporate investment, continually broadening the appeal of the jurisdiction for businesses in many fields, with specialisations in insurance and reinsurance and corporate and personal trust.

INSURANCE & REINSURANCE
Boasting almost 1,500 companies, a local workforce of about 2,500 and assets employed in excess of $100 billion, Bermuda's insurance market is the most economically important sector of the Island's international business industry.

The market traces its origins back half a century. In the late 1940's, the large American multi-national now known as AIG opened an office on the Island to oversee its worldwide operations. Other large companies followed suit. In the 1960s, American businessman Fred Reiss coined the term 'captive' to describe the kind of insurance companies he was setting up in Bermuda.

Today, more than 4,000 captives are in operation around the world. Bermuda maintains the lead in the market it created and has become the undisputed captive insurance capital of the world. A captive insurer covers the risks of its parent companies or related groups of companies. Their establishment in Bermuda was the first wave of insurance to land on Bermuda's shores.

Others followed. Bermuda's commercial insurance and reinsurance market now ranks alongside traditional leaders like Lloyd's of London. Often accessed through placing brokers, Bermuda's commercial or open insurance market was born out of a capacity crisis in liability insurance in the United States in the mid-1980's and was started by pioneering excess liability companies ACE Insurance and X.L. Insurance.

Finite risk insurance was added to the commercial sector in 1986. Then in 1992, on the heels of Hurricane Andrew, Bermuda attracted its first property catastrophe reinsurer. A further seven soon followed, resulting in a $4 billion inflow of new capital to the Bermuda market.

Buyers of commercial insurance and reinsurance coverages are increasingly shopping in the Bermuda market, which offers up to $500 million in excess liability insurance limits per programme and over $150 million in property catastrophe reinsurance protection per programme. Other leading products include directors' and officers' liability insurance, employment practices' liability cover, marine and aviation reinsurance, excess property, aviation products, satellite insurance and professional liability programmes.

CORPORATE AND PERSONAL TRUST
As long ago as the 1930s, Bermuda first began to offer corporate and personal trust services, which have represented a core business service for 60 years. The inherent flexibility of trusts enables investors to accommodate and meet a broad range of financial planning objectives.

Bermuda trusts provide an effective mechanism for ensuring the security of global assets and their efficient transmission to future generations, avoiding disruption on the death of the head of a family and the delay and publicity which can be brought about by administration. Accommodating flexibility and confidentiality, Bermuda trusts enable settlers to ensure the retention of family wealth, the continuation of family business and protection of assets from arbitrary seizure, nationalisation or other potential threats such as attack by future unknown and unanticipated creditors.

In many jurisdictions, opportunities for tax planning remain through the use of trusts along with protection against exchange controls. A traditional favourite for making provision for charity, trusts settled in Bermuda are also frequently utilised in employee stock option plans and in the establishment and holding of pension funds.

Traditional English trust principles have been augmented in Bermuda by legislation tailored to meet the needs of the international commercial community. Increased flexibility and certainty resulted from the enactment of the Trusts (Special Provisions) Act 1989 and the Conveyancing Amendment Act 1994. The laws of Bermuda provide scope for fair and balanced protection against potential future creditors along with enhanced planning opportunities for individuals governed by legislation which dictates how assets are to pass to relatives at death.

Significantly, the 1989 Act provides for purpose trusts, which can serve to benefit benevolent objects falling short of the definition of charity and in a commercial context, project financing and securitisations. Trusts can be created, inter alia, for the purpose of acquiring and retaining specific shares of a particular company. Such trusts can assist in achieving specific planning goals: corporations are commonly utilised to provide greatly enhanced lender protection in corporate financing transactions.

THE BERMUDA STOCK EXCHANGE
In operation since 1971 the Bermuda Stock Exchange (BSX) is the world's first fully electronic stock exchange. Currently more than 300 companies, international funds and debt issues are listed on the exchange, with capitalisation in excess of US$92 billion. In 1998 the BSX introduced BEST, a custom-designed electronic securities trading system. While trading on the BSX is restricted to registered Trading Members, trading and pricing information is available globally on a real-time basis on Bloomberg (BSX <GO) and Reuters (THE BSX). In addition to a local equity market the BSX offers a secondary market for international companies, such as ACE, XL Capital and Tyco International, which are domiciled in Bermuda. The exchange opens 90 minutes before the New York Stock Exchange and remains open after the New York close, providing a vehicle for trading outside normal Wall Street hours.

Most recently, the BSX has focused on products which are restricted exclusively to “qualified investors” enabling them to list start-up companies and specialist securities which would not otherwise trade on traditional exchanges.

A listing on the BSX offers an issuer prestige and visibility in a well-regulated offshore environment at very competitive cost.

COLLECTIVE INVESTMENT SCHEMES
More than 550 mutual funds and unit trusts, with assets approaching $20 billion, are registered in Bermuda, a premier domicile for such funds. Those who value security above all other criteria recognise that a Bermuda-based collective investment scheme provides the highest degree of investor protection. Since 1986, Bermuda has enjoyed Designated Territory Status for mutual funds under the U.K. Financial Services Act, which acknowledges the quality and security of the Island's regulatory framework and high level of investor protection.

Bermuda offers distinct advantages to mutual funds, including a Code of Conduct for Collective Investment Scheme managers and a wider range of investment opportunities than is permitted in other jurisdictions. Funds and their members are free from exchange controls and stamp duties. Flexibility has now been introduced in the requirement for a Bermudian custodian or manager where investor protection interests are not compromised.

BANKING
Bermuda's indigenous banking industry comprises three conservative and risk-averse licensed financial institutions, which voluntarily maintain risk-asset ratios well above both the 8% minimum required in the Basle Agreement on Capital Standards and the 10% Bermuda guideline.

The Bank of Bermuda, The Bank of N.T. Butterfield & Son, and Bermuda Commercial Bank, with combined assets of over $14 billion, provide high quality banking, trust and investment management services. Each also acts as custodian of assets worldwide on behalf of private and corporate clients, with more than $60 billion under global custody arrangements. The banks have established international networks connecting Bermuda around the clock with the rest of the financial world.

Deposits are accepted in all major currencies. Comprehensive banking services include international money transfer, cash management, letters of credit, corporate finance and sophisticated Treasury services to assist in the management of foreign exchange and interest rate risk. Global investment management and brokerage services round out the complete range of financial management services.

TRUSTS
Fixed, protective or special purpose trusts are an increasingly important aspect of financial planning for individuals, corporations and charities.

With over 60 years' experience in the establishment and administration of international trusts and related services, Bermuda has acquired an exemplary reputation as a discreet and secure jurisdiction for asset preservation and wealth management. The Island's political stability, responsible and responsive regulations and tax neutrality attract a broad range of clients, to whom Bermuda's trust service providers offer unrivalled expertise in international portfolio diversification and prudent, stable trust management.

Bermuda trust law offers many advantages: choice of governing law and the ability to change it; time limits up to a maximum of 100 years, or no such limits; no “forced heirship” exclusion; the concept of the private trust company; “purpose trusts”; and a stringent confidentiality condition shielding the details of Bermuda trusts.

INVESTMENT MANAGEMENT & ADMINISTRATION
Bermuda's experience in the field of investment management dates back more than 100 years. For the corporate or individual investor, the Island provides the opportunity to diversify portfolios internationally from a secure and stable base.

Advantages of Bermudian investment management include the diversification and preservation of assets, tax efficiency and confidentiality in a stable and investor-friendly environment with sensible regulation and few restrictions.

State-of-the-art telecommunications allow investment managers instant access to global markets. The network of Bermudian service providers – banks, accounting and legal firms and management companies – supply all necessary subsidiary services to allow the investor to focus on opportunities in the global market.

AIRCRAFT REGISTRATION & FINANCING
The Bermuda Aircraft Register, in existence since 1931, is regarded as highly reputable and flexible, without being over-regulated. The Register offers the sense of security that a stable political system affords. The neutral registration mark – VR-B, followed by two other letters – is seen as advantageous due to its apolitical designation.

The majority of the more than 100 aircraft on the Bermuda Register are privately owned or corporate jet aircraft used to transport beneficial owners or corporate executives.

A number of factors have influenced the growth and desirability of the Register and the use of Bermuda for aircraft financing. These include the use of a Bermuda company in an aircraft financing transaction which requires the aircraft to be held in a tax neutral jurisdiction; the use of purpose trusts to divorce aircraft ownership from lenders, lessors or lessees; the use of Foreign Sales Corporations in structured lease financing; and turnover of older or stored aircraft.

FOREIGN SALES CORPORATIONS
Bermuda's proximity to the United States and lack of franchise and withholding taxes provide significant advantages to U.S. Foreign Sales Corporations (FSCs). FSCs derive from the 1984 U.S. Tax Reform Act, intended to encourage the export of U.S.-manufactured products. A 1988 Treaty with the United States further developed Bermuda's role as a leading FSC jurisdiction. Bermuda's tax neutrality complements its advantage to the FSC.

FSCs fall into two broad categories: non-leasing FSCs and equipment FSCs. In the former category, Regular, Small and Shared FSCs provide benefits for a range of exporters. Equipment leasing commission FSCs are used in aircraft financing transactions by U.S. airlines and other carriers, as well as for rail transport equipment and satellites. Ownership FSCs allow the FSC itself to own and lease aircraft.

Among its competitive benefits, Bermuda also has advantageous bankruptcy laws for leasing FSCs.

INTERNATIONAL ARBITRATION
Long noted as a distinctly neutral jurisdiction, in 1993, Bermuda signalled its ongoing commitment to providing a neutral location for international arbitration by enacting legislation based on the UNICTRAL Model Law on International Commercial Arbitration. The UNICTRAL system of conciliation allows for settlement of a matter before it crystallises into a dispute.

The new legislation paved the way for the expansion of arbitration services on the Island; among its advantages are that foreign counsel need no longer master laws peculiar to Bermuda to participate in an arbitration hearing in Bermuda. Parties are free to use the services of lawyers or arbitrators of their choice without restriction. Among those who take advantage of the Island's arbitration services are those involved in sales agreements, reinsurance agreements or treaties, licensing agreements, commodity contracts or technology transfers, banking, financial, shipping and maritime disputes, whether or not under Bermuda law.

SHIPPING REGISTRATION & LEASING
First formed as part of the British Register in 1789, the Category 1 Bermuda Register is one of the world's oldest for vessels of every type, including tankers, gas carriers and yachts. Bermuda is also a leading jurisdiction of choice for the incorporation of shipping companies owning or operating vessels registered worldwide. Ships registered in Bermuda fly the Red Ensign. Nationality restrictions for the ship's master are retained for certain vessels, including passenger ships, product tankers and ro-ro's (classified as strategic shipping). Senior officers of non-strategic ships must meet the Bermuda Officer qualification standards. Ratings may be of any nationality.

The Bermuda Demise Charter Registry (BDCR) offers flexibility, competitive fees and tax advantages. Established in 1994, the BDCR allows the transfer to it for operational purposes of vessels registered on another Administration's principal register. Further, vessels registered under the Bermuda Flag enjoy “Equivalent Exemption Status” under the 1986 US Tax Code, where a company may apply for exemption from the 4% freight tax levied on goods imported to the United States.

Roger Crombie is a British Chartered Accountant who works as a writer in Bermuda. He gratefully acknowledges the assistance of the Bermuda International Business Association in the preparation of the foregoing.