Advisen, a leading provider of strategic information services to the commercial insurance industry, now projects that the total pre-tax insurance and reinsurance losses in respect of the three major hurricanes to hit the US this year will total $57.6 billion (comprising $40.4 billion for Katrina, $6.4 billion for Rita, and $10.8 billion for Wilma).

The combined losses from Katrina, Rita and Wilma amount to more than twice the annual total for other US natural disasters and one and a half times the losses from the 9/11 terrorist attacks of 2001.

Flood losses could elevate Advisen’s estimates by billions of dollars if lawsuits to force insurers to cover flood damage related to Hurricane Katrina are successful. Additionally, several hurricane-related pollution lawsuits could add hundreds of millions of dollars to the estimates.

Australia and Bermuda have signed a bilateral agreement to share tax information, a move welcomed by the Organisation of Economic Cooperation and Development (OECD) as a step "to counter abuse of the financial system". The announcement came as the OECD's Global Forum on Taxation to address harmful tax practices met in Melbourne, Australia (see subsequent post on this).

Under the agreement, the first such accord by Bermuda with any OECD country other than the United States, each party may request information from the other on a specific tax matter under investigation or audit. The agreement is the second tax sharing agreement signed by Bermuda, following a deal inked in 1988 with the United States. A similar agreement was also signed last month between The Netherlands and the British crown dependency the Isle of Man.

The fund-servicing industry in Guernsey has grown by nearly 18% to reach more than $140bn in net assets over the year to the end of June, according to the Guernsey Fund Encyclopaedia from Lipper Fitzrovia, the fund sector’s bible. The sector is now worth $143.4bn (£80bn), compared to $121.6bn 12 months previously.

"Once again the survey’s figures demonstrate Guernsey’s globally competitive position in the fund-administration and fund-custody sectors of the finance industry," said Ron Nutter, VP and global head of corporate and institutional business at the Royal Bank of Canada.

The island’s position as a centre for more-specialised funds is highlighted, with assets invested in private equity and venture capital funds domiciled in Guernsey now standing at nearly $50bn. Of new funds launched last year, European private equity/ venture capital funds attracted the largest proportion of assets at $8.3bn.

Lipper Fitzrovia also rates service providers for funds serviced in the island. It revealed that International Private Equity Services is the largest administrator by total net assets ($26bn) of domiciled and non-domiciled funds. Northern Trust places second in terms of assets ($24.9bn) and is ranked first by the number of funds.

Chief Minister Donald Gelling has criticised the OECD for its continued support of a blacklist drawn up in 1998 that features the Island. Mr Gelling recently visited Washington DC in an effort to remove the Isle of Man from various US blacklists.

He said that US state and federal departments were adopting the Organisation for Economic Co-operation and Development (OECD) list automatically, without considering the consequences for jurisdictions such as the Isle of Man.

The OECD drew up the list of tax havens in 1998 and published it in 2000, at the response of its member countries. At the recent global forum on taxation, held in Melbourne, steps were taken to reduce dependency on the list but it was not renounced — a move that should have taken place according to Mr Gelling.

He said: “The OECD list should be updated as there is no system to get the Isle of Man off it. Individual senators come forward with private member’s bills about things that can take money away from the state and they all use the same definition of a tax haven.”

The states of Montana, Maryland, Michigan and Pennsylvania all have current proposed bills that list the Isle of Man as a tax haven. There are also several bills at federal level that do the same.

The legislation largely concentrates around treating any US-owned companies in these jurisdictions as resident in the US for tax purposes, or reducing the benefits given to them by their state of residence.

None of the bills has been passed, but if they were, it could threaten the continued or future existence of US-owned operations based in the Island.

Mr Gelling said one of the reasons the Island appeared so often was the definition of low taxation based on direct income tax. He added: “Other jurisidictions have comprehensive income tax systems and others have comprehensive tax systems and we have the latter, with VAT, property tax and corporate tax. International Tax Counsel Patricia Brown (from the US treasury] accepted that it was more logical to look at total taxation systems as a percentage of GDP.

The Royal Gazette reports that the 10,000th fund to register with the Cayman Islands Monetary Authority was previously registered in Bermuda.

The article reports that the Rutland Fund is among 25 funds (representing a net asset value of $5.7 billion) that have left Bermuda since the European Union Directive on Tax Savings was implemented on July 1 2005. The EUSD requires paying agents to submit information about the savings income of EU citizens who are not resident in the country where they hold their account. Bermuda and other jurisdictions originally viewed their exclusion from the EUSD as an opportunity to develop their fund business at the expense of included jurisdictions such as Cayman. However, the opposite has happened because Cayman was able to negotiate to exempt approximately 98 percent of its funds from the reporting obligations of the directive. According to The Cayman Islands Financial Services Association, Rutland is among some 80 funds to transfer there since 1st July 2005.

The Street reports that when it comes to hedge fund returns, size matters. So far this year, hedge funds have returned an average of 2.42%, according to data compiled by Standard & Poor’s. This is below the S&P 500’s return of 3.76% and, barring a huge December, sets the industry up for its second straight year of disappointing returns. There are numerous explanations such as sluggish market returns and too many managers chasing too few strategies. However, one overlooked factor is that funds are getting bigger.

It is reported that according to a list published by Alpha magazine, the largest 50 hedge funds together control $385 billion of assets, which is about a third or more of the total asset based for the industry. Calculate the fact that there are about 8,000 to 9,000 managers and the power that is concentrated at the biggest shops cannot be underemphasized. This trend towards concentrations has been happening for the last several years with several enormous fund shops seeing assets surging – Farallon Capital Management, for instance, was the biggest fund this year with $12.5 billion in assets, a 27% increase from 2004. It is, therefore, believed by some that the biggest funds’ growth rate is impacting returns across the industry with an inverse correlation between size and performance. However, if the big funds are getting bigger, the reason is because institutional investors perceive them as a safer alternative than newer or smaller ones, even if the trade-off is often a lower performance.

Marhedge reports that Charles Schmitt, founder of the CSA Absolute Return Fund (CSA ARF), has filed for bankruptcy after appearing without a lawyer at a Hong Kong High Court bankruptcy petition hearing.

Schmitt, a Hong Kong resident is charged with theft of US$930,000 from the CSA ARF, following fraud allegations that first surfaced last year. The funds administrator appointed by the Securities and Futures Commission in Hong Kong has opposed the bankruptcy petition on the grounds that it will add costs and delays to the liquidation process, which will likely return less than 80 cents on the dollar to approximately 1,700 investors.

The Minister of Finance has announced that following an amendment to the Companies Act 1981 (the “Companies Act”) the business of collective investment schemes in Bermuda (more commonly known as mutual funds) is now designated as an unrestricted business activity under the Companies Act, with effect from 25th November 2005.

James Keyes, Partner in Appleby Spurling Hunter’s Funds and Investment Services Team commented, “The main impact of these changes will be to speed up the incorporation process for funds as they will no longer require the approval of the Minister of Finance. The Bermuda Monetary Authority (the “BMA”) will now have sole responsibility for approving fund incorporations. This follows an earlier change that allowed funds to be incorporated (and therefore establish bank and brokerage accounts) prior to receiving their Collective Investment Scheme Classification from the BMA. This is all part of an ongoing initiative by the BMA to enhance Bermuda’s competitive and responsive position in the offshore world.”

The Minister has emphasized that the change to the Companies Act is intended to make the process more efficient without in any way diluting Bermuda’s rigorous vetting and approval standards for mutual funds.

Bermuda has seen 11 new large (class 4) re/insurers open up for business this year. These include, Amlin Bermuda Ltd. (formed by its namesake, Lloyd’s largest independent insurer) and Hiscox Insurance Company (Bermuda) Limited, also being formed by a parent active in the Lloyd’s of London market. The other companies are Ariel Reinsurance Company, Limited, Ascendant Reinsurance Ltd., Castellum Re Ltd., Flagstone Reinsurance Ltd., New Castle Reinsurance Company Ltd., Arrow Capital Reinsurance Company, Limited; Harbor Point Re Limited, Lancashire Insurance Company Limited and Validus Reinsurance Ltd.  All of these start-ups are looking to raise between US$750 m. and US$1 billion, which will bring upward of US$15 b. of new capital into the Bermuda market.

Amlin, Valdius and New Castle have all been awarded an A- (Excellent) financial strength rating from the ratings agency AM Best Co. Amlin, has an initial capitalisation of US$1 billion. Amlin’s initial $1 billion capitalisation is derived from its parent company, Amlin plc, which provided the funds from a rights issue, short-term bridging financing as well as from existing resources.

Lancashire has listed on the AIM market in the UK.

The Royal Gazette reports that the wave of 2005 start-ups are gearing up to take advantage of higher premium rates when insurance policies are renewed for 2006, jockeying to be ready for the busy January 1 renewal period.

In addition the wave of new Class 4 insurers, there have several others formed with significant capital to provide reinsurance to existing insureres, such as Cyrus Re, a $500 million reinsurer, Omega and Blue Ocean Reinsurance Ltd.