Bermuda business boosted by US red tape, says Kramer
Bermuda's business growth has been boosted not by lax tax laws here but by burdensome bureaucracy in the States, says Ariel Re head Don Kramer.
Yet he said the tax haven label was still a huge threat to Bermuda, despite its unfairness.
Mr. Kramer, with more than 16 years experience in Bermuda's reinsurance industry, said dysfunctional regulation in the US meant a company had to file forms in every one of the 50 states individually.
Recounting his own experiences he told The Royal Gazette: "We have a small US operation we filed a form in one state - we copied someone else's form, we didn't want to reinvent the wheel.
"We told them it was a copy-cat form. We got 22 objections to a form already filed, you have to do this 50 times."
And his company also had to provide 40 sets of individual fingerprints for 40 states, said Mr. Kramer, as it switched tack.
"These are the same fingerprints you would have had to do in 1933, instead of doing one electronic copy and making it available to everybody.
"How many states have to process this? It is ridiculous, it is dysfunctional regulation."
Mr. Kramer said Bermuda had ease of entry - it was not lax but it was possible to get up and running quickly.
It meant the Island could respond to a crisis quickly - as evidenced by the start-ups after major disasters.
And ease of entry also mitigated against excess profit because it increased competition.
"They keep using this polemic of leveling the playing field, it's absolute nonsense. The playing field was always level here."
He said each State got tax revenue from insurers and so they were fighting to sustain the system, whereas the banks had fought free from that and gone on to become major players nationally and internationally.
"The insurance industry should be going the same way but hasn't yet and the States have been hanging on to control because they get premium tax revenues."
He said the Bermuda Government and business were working hard to dispel the tax haven myth.
"Someone in Australia made the comment that you can open a bank account in Nevada online - you can't do that in Bermuda.
"Here you have to show your passport - the truth is Bermuda is cleaner in many respects. It has not been a haven for tax evasion of any kind."
But the reality is the highly protectionist mood in the US is a major threat to Bermuda, said Mr. Kramer.
"With regards to the tax issue suddenly a coalition is building beyond Bermuda - Switzerland, Spain, France, England, risk insurance managers - RIMs, half a dozen states that are hurricane exposed.
"They are petitioning (Senate Finance Committee chairman) Senator Baucus, to avoid this Neal bill which is trying to prevent companies from reinsuring to their parent.
"And yet it is a common industry practice and has all kinds of safeguards built in but they are alleging it allows people to take money offshore, earn the money tax free and avoid taxes in the US.
"The truth is when you take money off shore through reinsurance you also take risk.
"We are not only seeding money here but we are paying it back in claims.
"In 2005 Bermuda paid back billions of dollars to the US in Hurricanes Gustav and Ike.
"And in 2005 they paid it back for Wilma, Rita and Katrina. So billions were paid back to Bermuda without any tax offset.
"If the US companies incurred those losses they would have had 'tax loss carry forwards' - they would either deduct it from their income or carry it forward as future losses against future income. But we pay them current," argued Mr. Kramer.
He added: "The money came here without any tax, it went back without any tax, that's why the Neal bill is so bad. It fails to recognise how the business really works."
But he said the bill was brewing in Congress with a great deal of political sentiment, given the US need for tax revenue.
n See Monday's paper for a full interview with Don Kramer.