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A delegation from Bermuda is preparing a road show to meet key industry participants in New York in October as a result of an upsurge in interest in the creation and listing of Insurance Linked Securities (ILS).
As the reinsurance market meets for its annual gathering at the Rendez-Vous in Monte Carlo, the Bermuda Stock Exchange (BSX), representatives from the Ministry of Finance in Bermuda, law firm Appleby and advisors Horseshoe Group announced they will visit New York to continue to position Bermuda as a leading jurisdiction for setting up and listing of ILS.
At the end of 2009, the Bermuda Monetary Authority introduced legislation that made it easier to form and list insurance linked securities on the British Dependent Territory and Bermuda has been positioning itself to attract and list ILS such as catastrophe bonds.
And as a result of this push, in July 2010, the BSX announced it had cat bond listings valued at over $1 billion for the first time.
“Since the new insurance legislation was introduced at the end of 2009, we have actively been marketing Bermuda as the jurisdiction of choice for setting up and listing of ILS structures such as cat bonds,” said President and Chief Executive Officer of the BSX, Greg Wojciechowski. “Our goal is to ensure that Bermuda is the first choice jurisdiction for the creation, listing and potentially secondary market trading of insurance linked security structures.”
A report in August 2010 by Aon Benfield said new issues of insurance cat bonds should rapidly rebound to pre-financial crisis highs as securities markets stabilize – and Bermuda is capitalizing on the interest.
Investors have been showing sustained interest in cat bonds, which enable insurance companies to raise capital through the transfer of insurable risk for events such as hurricane or earthquake damage to financial market investors, while their prices have also remained attractive for sponsors of the bonds.
“Bermuda is the world’s third largest reinsurance market and is already home to 1400 insurance companies with total assets of $442 billion,” said Paula Cox, Bermuda's Deputy Premier and Minister of Finance, “and many of its reinsurance companies have issued cat bonds or set up special purpose vehicles such as side cars. We are very pleased that the legislation has been working in Bermuda’s favour.”
David Lines partner and member of the insurance team at law firm Appleby said: “Bermuda is obviously keen to promote itself in this space and has specifically created a legal vehicle to enable the participants in the market to quickly and easily create a special purpose insurer while at the same time benefitting from Bermuda’s international reputation and reinsurance market.”
“There has been a great deal of interest in risk-linked securities in 2010,” said Andre Perez, chief executive of the Horseshoe Group, an independent insurance management services company with operations in Cayman and Bermuda. “Some market watchers are predicting cat bonds to grow to the peak levels that were seen in 2007.”
The BSX has listed 10 cat bonds with a combined value of $1.174 billion. Three of these have been listed since the end of 2009 – State Farm’s Merna Re II ($350 million), Flagstone Reinsurance Holdings SA’s Montana Re transaction ($175 million) and an issuance from Chartis, Lodestone Re, worth $425 million.
Since this new Bermuda push, growing numbers of institutional investors have made preliminary enquiries about setting up cat bonds on the island.
Wojciechowski added: “The publicity following this year’s listings had pushed the BSX forward in the eyes of the Capital Markets and raised the profile of the jurisdiction and the Exchange. We have come far in a very short space of time.” There have been 20 new catastrophe bond issues totaling $4.6 billion in the 12 months to June 30, according to Aon Benfield’s report, compared to 11 issues totaling $1.7 billion in the previous period. At the peak of the market in 2007, cat bond issuance reached £7 billion to the year end June 30.
The Bermuda Monetary Authority approved changes that resulted in the Insurance Amendment Act 2008, which came into effect in October 2009. It provides specific risk-based regulations for the establishment of special-purpose insurers as a new class of insurer in Bermuda’s insurance class system. It also recognizes and facilitates the structure of ILS, such as cat bonds, and a listing of these securities on an internationally recognized stock exchange makes these securities significantly more attractive for potential investors.
