How has Bermuda secured its position as the most popular domicile for ILS, and how can it preserve its competitive edge? Bermuda:Re+ILS investigates.
Bermuda was the domicile of choice for 57 percent of insurance-linked securities (ILS) in 2014, and the Island witnessed several further records being established in the sector throughout the year.
As an early leader in embracing and supporting the ILS asset class by creating the right environment for the vehicles to thrive, Bermuda looks committed to retaining its crown for the creation, listing and servicing of these vehicles in 2015.
Since 2009, Bermuda has grown to be the leading global domicile for ILS with nearly $16 billion listed on the Bermuda Stock Exchange (BSX) at the end of 2014.
Competing jurisdictions in the space continue to develop as they realise that Bermuda has had such a head start with its existing infrastructure, expertise and experience.
However, Bermuda faces strong competition from newcomers such as Malta, Gibraltar and Puerto Rico who are targeting ILS, as well as from the more established players such as the Cayman Islands, Guernsey and Dublin.
Maintaining a strong position
In order to capitalise on this advantage and retain its position as the premier ILS domicile in the world, Bermuda must continue to innovate to remain ahead of the curve.
This is according to Bermuda Stock Exchange (BSX) president and chief executive officer Greg Wojciechowski, who sees a number of other jurisdictions trying to win more market share as the value of ILS business continues to reach record levels.
Wojciechowski says that the record level of ILS listings on the BSX in 2014 accentuates the Island’s position as the top jurisdiction in the world for the setup, listing and support of ILS structures.
The BSX reached more than $15 billion in listed securities for the first time at the end of 2014.
In a banner year for the ILS sector, the BSX saw a 53 percent increase in its ILS listings from 77 in 2013 to 118 in 2014. Meanwhile, the value of these securities grew to $15.91 billion from $9.71 billion from the same period last year.
“Bermuda has proved time and again to be an innovative environment that encourages the growth of all forms of ILS—from catastrophe bonds to sidecars and collateralised reinsurance vehicles,” says Wojciechowski. “Bermuda has nimbly responded to changes in the industry to offer its global clientele modern and efficient solutions for their commercial needs.
“The jurisdiction has positioned itself at the forefront of the global development of the ILS asset class and the outstanding amount of ILS issued in Bermuda represents 57 percent of the worldwide stock of ILS,” he adds.
Easing the process
The Bermuda Monetary Authority (BMA) amended existing insurance legislation and brought in new standards for insurers in October 2009, making the setup of special purpose vehicles more straightforward.
“The regulatory framework and the operational infrastructure in Bermuda offer institutional investors a level of comfort that no other jurisdiction can provide. The Island’s deep experience and longevity in supporting the ILS sector has contributed to Bermuda becoming a centre of excellence and the jurisdiction of choice for the ILS market,” says Brad Adderley, partner at Appleby (Bermuda).
In addition, Bermuda has developed ancillary businesses and specialised service providers in order to further support the growth of the ILS asset class—such as accountants, attorneys, fund structures and investors, further fortified by respected regulators in the BMA and the BSX.
“This cottage industry has been cultivated from Bermuda’s experience in the reinsurance industry that has evolved to support the ILS sector,” adds Wojciechowski. “This existing foundation makes Bermuda the intuitive place to list ILS structures.”
Aon Benfield Securities reported $8.03 billion of property catastrophe bond issuances in 2014—the highest ever figure in the history of the sector.
There has also been a record amount of collateralised reinsurance capacity put to work—$36.2 billion at June 30, 2014, up approximately 23 percent from the $29.4 billion seen a year earlier.
As at December 31, 2014, there were a total of 762 securities listed on the BSX, including several additional variable rate notes and programmes from Alamo Re, Azora Re, Citrus Re, Gator Re, Golden State Re II, Kilimanjaro Re, Kizuna Re II and URSA Re.
Aside from the record annual issuance, several further records were smashed in the ILS sector in 2014, including a record second quarter issuance total of $4.5 billion across 12 catastrophe bond transactions, a record first half issuance total of $5.9 billion, and a record value of catastrophe bonds on-risk—which stood at $22.7 billion as of November 30, 2014.
“Maintaining liquidity in the ILS sector is hugely important to sustaining this growth, and in this regard the BSX has since 2009 been very helpful,” says Paul Schultz, the chief executive officer of Aon Benfield Securities.
“The listing of catastrophe bonds on the BSX has become an efficient, well regulated process, and the exchange has proved itself in being able to house the expertise necessary to satisfy the demands both of our clients and ILS investors.”
Schultz adds that 2014 was characterised by “more than just largesse, as we have taken positive steps to expand the scope of the ILS offering by structuring innovative deals to address new perils, new territories, and new currencies, as well as making ILS solutions more accessible to smaller firms and those companies wanting to structure smaller transactions”.
“Our outlook for the ILS sector for 2015 remains highly positive, and we anticipate that the capital inflows and strong pipeline of opportunities seen in 2014 to continue,” he concludes.
Following two successful events in 2013 and 2014, the Island will host the third ILS Bermuda Convergence conference on 11 to 13 November 2015 in Hamilton. It is a unique two-day networking event which brings leaders together from the alternative reinsurance, convergence and ILS marketplaces and is supported by the most respected organisations in the ILS sector, attracting investors and industry participants to Bermuda. With events like this, the cards may remain loaded in Bermuda’s favour.
Bermuda, ILS, Bermuda:Re+ILS, Bermuda Stock Exchange, Greg Wojciechowski, BMA, Brad Adderley, Aon Benfield Securities, Paul Schultz