Bermuda's rock solid

Dear Friend,

What a month it's been - I've been blown from a cold and wet London, to a hot and humid Bermuda and back again.

I must confess I was a Bermuda virgin before last week and I have returned mightily impressed by what has been achieved on its 22 square miles of volcanic rock, against what must have seemed enormous odds to the offshore financial pioneers of the 1960s.

Just a glance at this month's cover picture sets the geographical scale of the place in stark relief. But it's amazing what the growth of affordable air travel and modern telecommunications has done for a territory looking to specialise in financial services.

Such has been the success of Bermuda that its only problem is finding a way of servicing the needs of an ever-expanding business community without spoiling the charming character of the place.

There is no spare land - every square inch is already put to good use, so the only logical way to expand is upwards - but to date the islands have resisted the temptation to build anything higher than five stories.

House prices are understandably astronomical and it's almost impossible for lower-paid workers to find a place to live. Such problems are caused by success, not failure - the governments of most traditional western economies would dearly love to swap places with the Bermudian authorities.

(Anyway - who can afford property in London or New York these days?)

The only danger is that a saturation point could eventually be reached, causing a situation where the astronomical expense of maintaining a physical presence on the islands starts to erode its tax advantages. The domicile could then begin to lose its attraction for new start-ups.

But saturation is still a long way off - and since you need billions to start a new reinsurer from scratch, a few million here or there in operational costs is unlikely to affect your strategic decision to domicile on the islands.

The only other fly in the ointment is political uncertainty - the one thing investors want to know about a domicile, other than its tax rates, communications and legal system is that the place is politically stable.

Yes, now that independence from the UK is back on the political agenda - there is a tad more uncertainty circulating than before. But my personal view is that independence is a sideshow. Whether independent or not, and of whatever political hue, Bermudian politicians know that the success or failure of the islands' economy is inextricably linked to maintaining a critical mass of financial services based on Bermuda.

And when you have one of the highest GDPs per capita on the planet, why on earth would you want to start rocking the boat?

No, Bermuda's future is rock solid, and it's only wishful thinkers from rival territories who are saying otherwise.

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