BSX rides the cat bond wave


Greg Woiciechowski

It has been an exciting year at the Bermuda Stock Exchange. The exchange’s CEO, Greg Wojciechowski, has been promoting Bermuda as a leading jurisdiction for Insurance Linked Securities. He looks back on 2010.

2010 has been a great year at the Bermuda Stock Exchange. This year has seen a third, by dollar amount, of Insurance Linked Securities (ILS) or cat bonds, set up on the island and listed on our exchange— no small feat considering the legislation that contemplated the creation of these vehicles in Bermuda was only passed in October 2009.

ILS, mainly in the form of catastrophe bonds, has been once again proving itself as an important source of risk transfer capacity. There has been an increase in market interest in this asset class—and Bermuda has been taking advantage of this.


In 2010, at the time of going to press, $775 million worth of new ILS issuances have been attracted to Bermuda and listed on the exchange— bringing the total amount currently listed to $1.174 billion. Issuers are choosing Bermuda for the same reasons that their reinsurance and insurance colleagues did—effective regulation and critical mass of key players in the industry. Globally, the new issuances figure stood at $2.6, according to Reuters (see attached chart).

Cat bonds enable insurers to raise capital through the transfer of insurable risk for natural perils such as hurricane or earthquake damage via capital market vehicles. They have been popular with investors, while their prices thus far have remained attractive for sponsors of the bonds.

To say we are delighted about Bermuda’s and the BSX’s results to date is an understatement. There has been serious interest in ILS this year with market participants speculating that the issuance of these structures could reach levels not seen since 2007. We sense that there is an increased understanding and appreciation in the industry of Bermuda’s commitment to supporting the future growth of this market.

At the time of going to press, twelve new issuances had been completed in 2010 (with others in the pipeline). Two were issued and listed in Bermuda—but made up a third of the dollar value.

Many industry participants, including reinsurers and brokers, are positive about the potential of growth in this space and point to the number of issuances seen in 2010 as an indicator. The BSX shares this view in respect of this exciting asset class and is delighted at Bermuda’s commitment to be the jurisdiction of choice for these structures.

It is evident that investor appetite for this asset class is healthy—and this has been reinforced by the number of vehicles created, issued and listed so far this year.

Brokers suggest that the investor base looking at the ILS space are longer-term players such as pension funds and institutional investors, which bodes well for the growth of this asset class.

Bermuda is well-placed to support the growth in this space following legislative changes in October 2009, designed by the Bermuda Monetary Authority and industry participants, to streamline the process for the incorporation/setting up of ILS structures such as cat bonds or side cars.

This legislative amendment to the Class 3 insurance incorporation legislation has helped insurers by clarifying the rules for the creation of special purpose insurance vehicles, made their creation straightforward while most importantly, reducing time to market.

Listing these securities on an internationally recognised stock exchange such as the BSX makes the securities significantly more attractive to potential investors. We have been encouraging companies to not only create structures such as cat bonds in Bermuda, but also to list them on the Bermuda Stock Exchange.

Further, we have been promoting Bermuda and the BSX to investors and other market participants throughout 2010 and have been successful in establishing name recognition in this space based upon our commitment to provide the framework for the continued growth of this sector and accelerate the convergence of these markets.

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.

In September, a delegation from Bermuda travelled to New York to meet key industry participants as a result of the upsurge in interest in the creation and listing of ILS. We were joined by representatives from the Ministry of Finance in Bermuda, law firm Appleby and advisors Horseshoe Group.

The trip was successful and punctuated the impact Bermuda and the BSX has had on the market and investors. Our goal throughout this year has been to ensure that Bermuda is in the front of mind for the creation, listing and potentially secondary market trading of ILS and we will continue the effort.

Bermuda is the world’s third largest reinsurance market and is already home to 1,400 insurance companies with total assets of $442 billion, and is a natural place for setting up cat bonds. Many of our reinsurance companies have issued cat bonds or set up special purpose vehicles such as side cars—so we have a historical interest and knowledge.

The participants in the market understand from our reputation that they can quickly and easily create a special purpose insurer, while at the same time benefiting from Bermuda’s international reputation and reinsurance market.

The BSX currently 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.


We have come far in a very short space of time.

Greg Wojciechowski is president and chief executive officer of the Bermuda Stock Exchange. He can be contacted at:

What was set up this year in Bermuda and listed on the BSX end 2009 to end 2010:

State Farm’s Merna Re II ($350 million), Flagstone Reinsurance Holdings SA’s Montana Re transaction ($175 million), Chartis’ Lodestone Re ($425 million). Total: $950 million

What the Aon Benfield ILS report said:

Interest shown in Bermuda with ILS follows a global trend. In a report in August 2010 by Aon Benfield, the brokerage said new issues of insurance cat bonds should rapidly rebound to pre-financial crisis highs as securities markets stabilise.

It said that the ILS market had achieved a 170 percent increase in annual issuance, reversing a decline of 71 percent for the same period in 2009. The report stated: “Specifically the market placed $4.6 billion over 20 transactions, compared to just $1.7 billion in 11 transactions during the 12 months ending June 30, 2009. The 2010 result was exceeded only by the volumes set in 2007 and 2008 ($7 billion and $5.8 billion respectively). Clearly sponsors continue to value the ILS market as a viable alternative, and a cost effective complement to traditional reinsurance.”

Bermuda Re