04 Dec Maintaining a robust and active profile at the top of multiple sectors
Tim Faries, Bermuda Managing Partner, Appleby, underlines the gravity of quality over quantity when venturing into emerging markets
As managing partner of Appleby’s Bermuda office and CEO of Appleby Global Services (AGS), can you provide us a glimpse into the sector?
The legal sector is a strong and diverse group of independent firms, specifically Bermudian-owned, offshore-owned, or global financial service center-owned entities, many of which have long-standing roots in the Bermuda economy. We have grown up with the jurisdiction, and as it diversified and became an international business center, so too did our firms. Appleby traces its history back to the late 19th century and we have developed with the international business sector, as it has grown up since the 1950s. The sector is open to all businesses of quality and substance, but you could say that insurance and reinsurance has been our longest standing specialty. It started with the establishment of a company originally called the American Reinsurance Company Limited in 1948 which became AIG, a global insurance brand, and one which still has significant operations in Bermuda. That center of excellence was a good centripetal force for the development of the sector. Next was a captive sector which grew up in the 1970s and 1980s, and from the early 1990s onwards, we saw different waves of large and highly capitalized reinsurance companies dealing with catastrophic events, like windstorms in the Caribbean, earthquakes in the ring of fire in the Pacific, European winter storm issues and others. Those of us in the legal sector that are involved in international business grew and developed to support that area in particular. As the economy has developed, we have also grown and developed our businesses to reflect the sectors that require legal services, such as banks and investment management firms, energy and natural resource developers, tangible and intangible asset financing, public and private capital markets, private wealth, and, in recent years, digital asset businesses. There will be some interesting consequences from the pandemic and how people approach living and working.
Presently, we have a half dozen firms in the legal sector who have a significant amount of focus on the international business sector, again, insurance and reinsurance, banking and investment management, energy and natural resource development, tangible and intangible asset financing, public and private capital markets, private wealth, and digital asset business. Those law firms are locally owned but, many, if not all of them have a network of affiliates or trade under a global brand name, as Appleby does in various jurisdictions.
AGS is a licensed trust and corporate service provider, operating in Bermuda and other jurisdictions in which Appleby operates. There is a natural connection between the legal advisor of corporate structures and transactions, and the administration of the structures that are set up to do those transactions. For regulatory and other reasons, the two entities are run separately but side-by-side to offer clients a holistic solution to their corporate needs in Bermuda. Most, if not all the firms which are operating in the international business sector in Bermuda have affiliated corporate service providers who are also doing that work. There are some other independent providers in that space, as well, all servicing the roughly 15,000 international corporate businesses currently in Bermuda.
Service lead jurisdictions are bolstered by the legal sector. Could you highlight why firms such as Appleby are so important for a jurisdiction to remain globally competitive?
It is important to have firms like Appleby which have been part of the community for some time and know what is important to the community, as well as have the perspective of what would be important to the international client. We can ensure that a small island in the middle of the Atlantic is a place where there are significant and good reasons for businesses to be attracted to come here. But, when they do, we want to make sure that their presence benefits the community as a whole. Having a firm like Appleby advising on the establishment of structures which has both a local and an international perspective is very important. Most of my colleagues in our firm have work experience in large financial centers and we have been educated in other parts of the world. In other places you have seen large global firms enter the local market and there is definitely a place for that in various contexts, but what works best for us in Bermuda is to have that combination – a firm which has deep roots in local the community and can also have a perspective that will resonate with the international client.
Are there any other specialty services that you would like to talk about as far as the firm goes?
You can say that our strengths are Bermuda’s strengths. We are leaders in the legal field of insurance and reinsurance, and we have a strong history in that industry. Former partners of Appleby were instrumental in the drafting of the initial regulatory framework, the 1978 Insurance Act, that kick-started much of the industry here. We have been enthusiastic participants in the development of the digital asset business sector. We are wholeheartedly supporting the government’s initiatives to position Bermuda in a leading space in the regulated digital asset world. You have this emerging opportunity where digital businesses are geographically very mobile. They do not necessarily need to be in any particular place, nor do they need to have a large footprint in terms of plants, manufacturing sites, and factories. This makes digital asset business is perfect for a small place like Bermuda, which is well located, accessible and stable.
A key element to engaging responsibly in this new emerging sector is to have a regulatory framework and licensing regime to ensure only responsible, transparent operators are allowed to operate from our shores. A licensing regime helps the operators with establishing their credibility as they pursue their own business plans globally. It also ensures Bermuda’s continued credibly as a responsible, transparent place from which to do business.
As managing partner, what are your main priorities for the firm going through 2021?
We were successful in 2020 to navigate our way to where we steadily increased business flow, with high employee engagement and productivity. Our number one priority for 2021 remains keeping our people safe and productive as we continue to navigate and change with what the pandemic presents to us. Bermuda has had a superb vaccination program, with the goal of reaching herd immunity before our summer tourist season commences. We are looking at how the rolling out of vaccinations will impact how our staff interact with each other, how they interact with our clients, and how we get our work done. International business for the jurisdiction has been strong through 2020 and 2021 so far. There are definitely other areas of Bermuda’s economy, such as the retail and local services sectors, which are not in the same position that the international business sector has been in over these past 14 months, so our economy does face challenges, like many other places, as a consequence of the pandemic. But if we focus on just international business, we have not seen a diminution of business flow due to the pandemic. If anything, we have actually had an increase in volume, and we see that continuing for the remainder of 2021.
Our focus is to help our staff to continue the transition to what I think is going to be the new way of doing business. How we marketed our business in the past is going to be different in the future. How we engage on a day-to-day basis with colleagues and with clients is going to be different. We have been dealing with that already, but as 2021 continues we will be figuring out which elements are permanent changes, and which were just a function of a temporary crisis period. I think that once we can achieve herd immunity in Bermuda, although we will still be concerned about the transmission of COVID-19 and the emergence of variants, things will be different, and better, than they are today, with more individual freedom to move around the community. However, I do think that the pandemic has changed the way people will want to work in the future. I think there will be more flexibility in the workplace, a greater use of technology to permit real-time interactions, and that these are good and positive outcomes which have the potential to improve both work-life balance and productivity. Certainly, I am optimistic of the changes that may come. Working with our staff to transition to that new way of doing business is my key focus for our business for the remainder of 2021 and going into 2022.
How did 2020 look for AGS, and where did you see growth for the company this year?
In 2020 we more than doubled the number of structures we support in Bermuda and by our second-year anniversary in the spring of 2021, we tripled our growth globally. For a new business coming in we would expect year two to be better than year one in ordinary circumstances, so the pleasant surprise for us was even though year two was a pandemic, we still saw that trajectory continuing upward.
The growth has come from our traditional areas of business. Firstly, we have seen a lot of insurance startups. The pandemic has thrown off new risks that need to be financed through insurance products, meaning new opportunities in new jurisdictions. Again, I think it is a case of Bermuda being able to stand upon its 40 plus year history as a center of innovation for insurance and reinsurance products to drive that business to the Island. Secondly, growth has come in the digital asset business sector. We have seen much interest in the space in years past, and we are now seeing that interest translate into new structures and transactions opening on the Island. Looking forward, we expect more of the same heightened activity that we have already been seeing across the various elements of insurance and reinsurance, namely ILS, life reinsurance, catastrophic risks, large, capitalized companies, small to medium-sized companies, and digital assets as well.
What services do you offer that can accommodate the influx to Bermuda of mobile investors and businesspeople with their highly mobile lifestyles?
We have had a private wealth team for a couple of generations in Appleby. Bermuda has always been a jurisdiction of choice for high value, high quality family structures that have been here for many years, if not decades. Appleby has been privileged to service a number of those family structures over a very long period. We have a team, both on the legal side and on the fiduciary side that has the experience and the understanding of the private wealth space and they are able to welcome new families and new groups, whether they want to use Bermuda as their base for a family office, or they want Bermuda to be part of an international structure holding their wealth. As there is a generational shift in wealth from an older generation to a newer generation, you see priorities changing. We have seen a lot of focus in the last two years on philanthropic structures being set up as a component of a family office, or a family holding group. I think this reflects a growing understanding among that class in particular that there is a need to be involved in a structured way in philanthropic causes.
What are some of the growth opportunities associated with cyber risks for today’s insurers and consultancies alike?
Cyber insurance and cyber risk are indeed an emerging sector in the insurance and reinsurance industry. On the one hand, for businesses, cyber risk is at or near the top of their own risk matrices and given the highest priority in their own risk committees. Information security is at present a foot race between those who are looking to put in systems to protect their businesses from infiltration from hostile outsiders, and hostile outsiders’ increasing sophistication in being able to break those systems. In the insurance industry, where there is a threat, such as cyber risk, there is always an opportunity. Cyber risks may not necessarily lend themselves well to traditional underwriting methods. Bermuda’s insurance market has been the place in which innovative solutions to emerging and challenging risks are created. I would see cyber risk as being just another example of how the Bermuda market can create and implement the best solutions to help companies manage and finance difficult and challenging risks that threaten businesses globally.
What are the main existential challenges for Bermuda and how can the jurisdiction tackle the most recent paradigm changes?
We have operated in a global economic environment where, over the past 20 years, there have been almost constant shifts in terms of the playing field and challenges that have been described as ‘existential’. Whether they be changes designed to shut out the international financial centers entirely from global commerce, or regulatory changes that make it more difficult for insurers or reinsurers to underwrite businesses, Bermuda has faced a steady stream of these challenges in the past and has successfully come through them. I think that we will, as a jurisdiction, look to address emerging challenges in the same way that we have done and had success in the past. As a small jurisdiction in the middle of the Atlantic, we do not have a large platform in which to get our message out to key decision makers in our global markets. Our story is a good one and, when properly told, is one that shows Bermuda as a healthy and strong contributor to global economic prosperity far beyond what you would expect from such a small place with such a small population. We are net providers of good in terms of economic prosperity, but we do not necessarily get the opportunity to present that to the world. We will take every opportunity presented to us, as a jurisdiction, to tell our story and hopefully dispel some of the misinformation that can swirl around us.
What is Bermuda’s unique value proposition compared to other small island economies and what is it really like to live there?
When I think of Bermuda, three words come to mind: transparency, efficiency, and accessibility. Transparency has always been a hallmark of our jurisdiction. We are a small island nation that is focused on cross-sector collaboration. Both the government and the private sector are focused on it and in many ways; we can partner elevating Bermuda’s profile as a jurisdiction for good quality businesses who wish to operate in a transparent and efficient manner.
Efficiency is an area in which all, as service providers in this jurisdiction, need to challenge ourselves to be better every day. Our efficiency in producing our work product has a direct correlation to price, which will drive business towards us or away from us depending on how that pricing compares to our competitor international financial centers.
One of the things that separates us from many other business centers is accessibility to key decision-makers in government or key regulatory bodies. We strive as a jurisdiction to have much less ‘red tape’ compared to most other places. Businesses are able to get in front of senior people in the Bermuda Monetary Authority (BMA) or the government who are able to make the decisions that affect their business on a very quick timescale. I deal with people in New York or London all the time. I know that if they need to get in front of a regulator, it is sometimes six to eight months before there is a conversation with the decision-maker.
That accessibility does not come at the expense of a robust regulatory environment. We have shown that it is possible to have both accessibility and robust regulation. The accessibility of government officials, of key decision-makers around policy, combined with a global gold standard regulatory regime, is something which we feel separates Bermuda from many other places businesses may seek to locate. It is the transparency, the efficiency, and the accessibility that are the key hallmarks of why Bermuda is a place to come to for your international business.
In terms of what it is like to live here, it is a lovely, beautiful island with warm friendly people. People talk about work-life balance, and I think it is a good value that everyone should strive for, in whatever setting that they are in. Bermuda allows you to maximize both the work and the life side of that balance, providing thriving and vibrant work, and a beautiful, relaxing, stress-free engaging life side of the equation. And then, outside of the current global pandemic, if you ever get tired of the Island, New York is just two hours away by air, and London is an overnight flight. You are able to enjoy the beauty of the Island and are able to get away when you feel the need to. Obviously, I am biased, but even from an objective perspective, I do not think there are many places like Bermuda in the world.