The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Prime Minister has joined insurers in sounding the alarm that remittances from European reinsurers on could be "reduced by at least 25 percent" if The Bahamas remains on the continent's tax blacklist.

Philip Davis KC, speaking at the Group of 77 (G77) nations plus China forum in Havana last week, warned that if The Bahamas remains on the European Union's (EU) non-cooperative tax blacklist following next month's review then local homeowners and businesses could struggle to claim the full insurance payout due to them in the aftermath of a severe hurricane.

Slamming the EU action as arbitrary and unjust, he added that it also represents a threat to The Bahamas' ability to withstand the effects of climate change. "The effect of the climate crisis is felt disproportionately by small developing countries like The Bahamas. This is exacerbated by the arbitrary blacklisting of these same vulnerable countries such as The Bahamas from the very same countries that are responsible for the climate crisis," Mr Davis argued.

"For example, when it comes to insurance, these blacklists result in any remittances from European reinsurers on claims being automatically reduced by at least 25 percent. A significant percentage of the monies owed is punitively retained by the EU. We are thus poorer and less able to rebuild because of the effects of the climate crisis."

Tribune Business reported earlier this year warnings from Bahamian property and casualty insurers that they could lose up to 35 percent of reinsurance capacity if this nation fails to escape the 27-nation EU's blacklist after next month's review. Otherwise German reinsurers such as Munich Re will be prevented by German law from receiving tax relief or deductions on hurricane-related claims payouts to The Bahamas

Given that such payouts will likely be worth hundreds of millions of dollars if a Dorian-strength storm strikes a major Bahamian island, the loss of such tax relief might deter German reinsurers from continuing to support local carriers by underwriting the bulk of this nation’s risks.

Such a scenario, if it happens, would occur at the worst-possible time given that reinsurance capacity and willingness to underwrite risks in the disaster-prone Caribbean is at a near 30-year low. Insurance Company of The Bahamas (ICB), in its 2022 annual report, said the drop in reinsurance availability has already pushed property insurance costs for Bahamian homeowners and businesses to the highest levels it has seen in its 26-year history.

Bahamian insurers recently reiterated previous warnings that, in present market conditions, they would struggle to replace the loss of capacity provided by German reinsurers. Besides further increasing already-high premiums, they added that the loss of reinsurance supply might also leave them unable to provide coverage for new homeowner and business clients.

Timothy Ingraham, Summit Insurance Company’s managing director, said: "It's critically important that we are removed. The consequences if we're not removed could be loss of capacity, specifically from the German market, and/or increased rates by having to find capacity elsewhere that may be far more expensive than the rates we're paying now. It will create problems of affordability for many.

"We're hoping everything necessary gets done prior to the October review. That is coming up very shortly. Hopefully all that is done in time for the EU to review it and says we've done what needs to be done."

Anton Saunders, RoyalStar Assurance's managing director, told this newspaper: "The concern will be if we don't get off, can we access capacity to replace the German reinsurance capacity? We're telling the Germans we are doing what is necessary to get off the list, and don't think we should be on the list next year.

"We had a very good meeting with the attorney general [Ryan Pinder KC]. We believe he's doing the right things and passing the right laws, but as we told him, it's up to the technocrats to do their job." To address EU concerns over deficiencies in its economic substance regime, The Bahamas has implemented a new reporting portal, reformed the relevant laws and implemented an inspection regime to ensure financial providers are in compliance.

Mr Davis, meanwhile, used his G77 plus China address to renew calls for the United Nations (UN) to replace the EU and Organisation for Economic Co-Operation and Development (OECD) as the arbiter on global tax co-operation and administration. "The United Nations is the appropriate body to design and build a truly equitable and inclusive international tax administration architecture with equal footed representation, an environment of one country, one vote," he argued.

"For too long we have all lived in an environment where global tax policy was mandated and designed by the OECD, where concepts underpinning the current international tax system prefer the interests of the global north, that is, OECD members and developed countries, at the expense of small developing countries, primarily black governed former colonies in the global south, former colonies of those same members of the OECD.

"The arbitrary and discriminatory actions of the OECD and EU have disproportionately affected countries of the global south, already reeling from actions and impacts of countries from the global north..... We demand equal treatment, we demand the UN be the proper arbiter in tax matters, we demand privileged multilateral organisations like the OECD take your knee off the proverbial necks of countries like The Bahamas, countries of the global south," he added.

"So, the way forward for the G77 is clear. It’s a path paved with technology, driven by the ambitions and aspirations of our youth, and steered by the collective wisdom of our nations. The G77 also must make a stand in support of equality among countries and governance at appropriate forums such as the UN, an environment where developing countries in the global south have the same policy impact globally as developed countries of the global north."