Once a tourist getaway for the affluent, Bermuda is seeking to become the "Information Island" for the 21st century and a premier base for enterprising global companies. As unassuming as the cluster of islands may appear, the British territory is home to an increasing number of insurance, reinsurance, telecommunications, and e-commerce companies. It is the world's largest center for captive domiciles, companies created to insure the risks of the founding insurance companies. It is also the world's third-largest insurance hub, after London and New York, and among the leading technologically wired countries.

Within the past five years Bermuda's tourist traffic has been supplanted by increasing volumes of insurance and e-commerce traffic, encouraged by the island's consumption-based taxes, flexible regulatory condilions, strong infrastructure, and advanced Internet service and legislation. Although the economy is currently riding a wave of transformative change present ing less than optimal strength, this period can be viewed as reinforcing future prowess.

As government and business sectors realign themselves in the new global economy Bermuda maintains its 1999 Standard & Poor's stable economic status "reflecting the expectation that the key economic and export sectors of offshore business... will continue to grow." Recent economic studies forecast GDP to grow 2% in 2000-2001 (a half percentage point increase from 1999), inElation to remain between 2% and 3%, and debt to stay below 10% of GDP In the past year the total number of international businesses registered on the island reached nearly 12,000, and 40 new captives were formed.

These moderate figures are signs of an economy responding to millennial anxiety compounded with global and national changes. Bermuda, however, is ensuring its future stability by continuing to utilize the strengths that have defined its meteoric success: close cooperation of government and businesses, flexible regulatory and neutral tax conditions, and-perhaps most important-forward-looking business acumen attracted by the aforementioned conditions.

Over the past quarter century Bermuda has evolved into a critical financial center under the laissez-faire aegis of the territorial government. Although there was speculation regarding policy continuity in 1998 when the Progressive Labor Party (PLP) replaced the more conservative United Bermuda Party, Premier Jennifer Smith's government has maintained a facilitating attitude toward business and stewarded the economy toward global competition.

Rather than simply preserving Bermuda's status as a premier offshore domicile, the government has acted with foresight, especially pioneering the resolution of e-commerce legality and security issues. The Electronic Transactions Act in 1999, and the Standard for Electronic Transactions (Code of Conduct) in 2000 are landmark pieces of legislation that guarantee the security and safety of online transactions utilizing Bermuda as a gateway. In the age of cyberspace, when geographic location is less relevant than URL, these are the types of policies Ross Webber, marketing manager for the Bermuda International Business Association, refers to when he says: "Bermuda is a one-stop shop for e-business, where a company can incorporate online, list on a world-class exchange, and take advantage of the island's sophisticated services."

Inevitably, the business-to-- business and business-to-consumer services provided by these companies affect and are complemented by developments in more traditional sectors.

The Bermuda Stock Exchange, the world's first fully electronic offshore securities market, was recognized in 1996 by the US Securities and Exchange Commission as a "designated offshore securities market." It epitomizes the successful capitalization of the island's technological and intellectual wealth in the new electronic economy.

In another sector, the Bank of Bermuda, with L80 billion in assets under administration, has taken a substantial lead in catering to the developing electronic needs of its clients. Besides offering digital signature, security, and "know-your-- client" solutions through QuoVadis's commercial Certificate Authority, the Bank of Bermuda has entered into strategic alliances to provide more e-business strategies and solutions.

Of a recent agreement with oeBusiness.com, David Lema, electronic banking manager for the Bank of Bermuda, says: "The e-suite structure provides a convenient alternative to a full company incorporation. It is yet another option onshore companies can select when they decide to take advantage of the many benefits Bermuda offers" The alliance with FirstEcom.-- com, based in Hong Kong, created First Ecommerce Data Services to provide credit card transactions with multicurrency processing and settlement options. Adds Lema: "FEDS is an interesting value proposition... meeting the processing needs of on- as well as offshore banks. Consequentially, Bermuda is positioning itself to meet the needs of both components of the e-commerce transaction!

These efforts to capitalize on Internet-induced global change are mirrored in the island's insurance and reinsurance market, the island's largest industry, with a capital base in excess of $100 billion. Bermuda is a hub to giants such as Ace, XL Capital, ParnerRe, and Centre Solutions, and the insurance industry determines its economy as no other sector does. So if the territory can be considered to be going through diversifying changes, it is in large part due to the "growing pains" experienced by the insurance and reinsurance industries in 1999.

Although Standard & Poor's classified 1999 as a poor year for Bermuda's insurance market due to more competition, and increased catastrophe losses, there is still confidence in the general health of the market. "The year 2000 is showing significant improvement due to decreases in catastrophe loss activity," remarks Donald Watson, Standard & Poor's analyst. Others, such as Brian Duperreault, chairman and CEO ofAce, point to less transient factors, such as the island's"stable political environment, consumption-based tax system, well-developed infrastructure, efficient regulation of the financial-services sector, and the partnership between the government and the private sector [that enables] creativity and innovation.'

This positive assessment is based on Bermuda's continuing ability to attract intellectual and creative talent to its flexible regulatory environment, the distinguishing factor for identifying Bermuda as the world's "insurance laboratory." Insurance giants are diversifying their underwriting risks and management techniques to encompass cyberspace insurance and other types of nontraditional insurance.

XL Capital and Ace, two of the largest insurance companies are branching out as conduits to capital markets through "financial insurance"-ventures that take advantage of the increased coverage afforded for catastrophe loss in capital markets. Explains Duperreault: "Ace and the other insurance and reinsurance companies based in Bermuda provide highly customized risk solutions and adapt quickly to changing market conditions.... The deployment of finance-- based insurance products [has] been driven largely by Bermudabased companies."

Last year witnessed acquisitions by both companies.Ace acquired US-based CIGNA's property and casualty operations, and XL Capital purchased US-based Nac Re. Both companies will still have to deal with globalizing market forces, but their diversification strategies typify a previously successful, characteristically Bermudian combination of caution and strategic management. Ace in particular is demonstrating that underwriting profits and organic growth can be achieved through perspicacious business management. It has a healthy forecast as part of the Ace INA Group, which recently received an upgraded outlook of positive (from stable) and an A+ rating by Standard & Poor's. As more and more companies conduct business online, quite a few may come to agree with Duperreault's opinion that "we continue to believe that being headquartered in Bermuda provides a competitive advantage that would be difficult to duplicate."