No fear of new ILS hubs: BSX
Bermuda has dominated the ILS space globally for several years, and that will not change if Greg Wojciechowski, chief executive of the Bermuda Stock Exchange, has anything to do with it. He explains to Bermuda:Re+ILS how important the ILS market is to it.
The Bermuda Stock Exchange (BSX) continues to develop in line with its core mission, which is to create and maintain a capital markets stock exchange platform for the benefit of Bermuda and domestic investors, and insurance-linked securities (ILS) is an increasingly important part of that plan, according to Greg Wojciechowski, BSX chief executive officer.
Wojciechowski has beaten the drum for the importance of ILS for many years. He is clear that as this form of risk transfer becomes more prevalent and widely used, the BSX wants to maintain its dominant position in the sector—for the benefit of Bermuda.
“Our business model is robust, and providing listing support services for the ILS market continues to be a strong proposition for us,” he says. “We continue to fortify our position into the international capital markets.
“The ILS sector is still developing and growing and is now a mainstream product in risk management programmes. There is a record level of ILS listed on the BSX: a total of 271, with a market cap of more than $30 billion. If you look at that as a component of the overall cat bond market issuances it’s a significant part of it—more than 80 percent.”
Wojciechowski says that the BSX is delighted with this, as it’s a result of the work it has done with the market, and more broadly Bermuda, in supporting the ILS space.
A growing crowd
According to Wojciechowski, the BSX is now seeing issuers who have used the market before, returning and enhancing their commitment. In addition, new structures are being developed by new issuers.
He is aware that there is competition. London and Singapore have both made moves to set themselves up as ILS hubs, and the BSX continues to monitor what’s going on in terms of its competitors and other jurisdictions. Wojciechowski says that Bermuda will watch with keen interest as more domiciles have started to target the ILS sector, expanding the choice of where sponsors can place their securitisations.
He believes Bermuda will face increasingly stiff competition from the other domiciles active in the space or targeting ILS, but also that Bermuda has had a solid and effective head start which is predicated on its existing and robust infrastructure, expertise and experience.
He adds that competition is a good thing and that he welcomes it as ultimately a larger market is in everyone’s best interest. He adds that it’s been a solid year for the BSX and there has been no sign of competition making inroads just yet.
“One thing that makes Bermuda stand out in comparison to other jurisdictions is its longevity in the business and the critical mass of experience that has been amassed over the years,” Wojciechowski points out.
“The market in general is going through changes, such as consolidation and fiscal and policy. But the Bermuda model is resilient, it’s providing value and innovative commercial solutions as the market evolves.
“What makes Bermuda so important to the global industry is first, its proximity to two of the deepest capital markets and two of the largest reinsurance markets in the world, and second, its experience and understanding of this unique segment of the insurance industry, which will continue to be in great demand to narrow the global insurance protection gap.
“Above all, the infrastructure that supports Bermuda’s commercial platform has evolved and continues to meet the needs of the market,” he says.
Innovation is key
Wojciechowski says the delivery of innovative commercial solutions is the hallmark of Bermuda’s approach, coupled with a strong understanding of risk transfer which is a part of Bermuda’s commercial DNA. These have combined to create a rock-solid platform that has made Bermuda the centre of excellence for the creation, support and listing of ILS vehicles and places Bermuda in a very strong position to help the market evolve well into the future.
“From a domestic perspective, our service providers and the ecosystem around the ILS market continues to develop to support our global clients,” says Wojciechowski.
“That ecosystem includes the regulator, the Bermuda Monetary Authority (BMA), which has sought and achieved Solvency II equivalence, a differentiating development for Bermuda and a key endorsement of the credibility of the regulatory framework of the country.”
Wojciechowski says that the BMA takes a commercial approach when discharging a ‘fit-for-purpose’ regulatory framework that provides the safeguards needed to protect the market. This commercial yet appropriate regulatory approach creates certainty for issuers using the Bermuda platform. The market is sensitive to its ability to get products to market and the Bermuda platform is known for its ability to provide certainty of speed to market.
He adds that the service providers that support the industry, such as the law firms, accountants and administrators, all understand the nuances of the market which reduces the launch friction when structuring and supporting a deal.
“Over the years, the BSX has worked closely with the market to create a listing platform that meets the needs of the market while respecting the philosophy of exchange regulation.
“The relationship we have developed with the market is clear from our reported results. The BSX is an internationally recognised stock exchange which not only provides support to Bermuda deals—we have deals listed from other jurisdictions including those in direct competition with Bermuda,” he says.
“We will expand our exchange support to deals from jurisdictions that are now entering the market.”
He stresses that the exchange will not rest on its laurels when it comes to innovation.
“As we have critical mass, and longevity working with the ILS asset class, the BSX will continue to look at ways it can support the further development of the asset class including aspects of secondary market activity such as transparency in secondary market price discovery and trading,” he says.
Wojciechowski admits that change and growth continue in the market and that the BSX recognises that competition is inevitable, given the traction seen over the last decade in the development of the ILS asset class.
That said, he feels that Bermuda and BSX have a reasonable head start, providing the ILS market with the solid foundation upon which to continue to support the needs of an evolving market.
“It’s like constructing a building. You have to have a solid foundation, which provides the platform for upward growth. A tried, tested and solid foundation provides the basis for innovation and product development and support.
“Also a solid foundation provides very important stability when the market is tested. The Bermuda market has been very responsive to the needs of its clients in times of need and Bermuda is well known for its payment of claims.”
Wojciechowski concludes with a warning. He stresses that when in a leadership role, complacency is not an option and competition is an excellent driver to ensure that a keen eye is kept on market and customer developments.
“In Bermuda we realise that the market continues to develop and change and our experience allows us to absorb, recalibrate and service our clients as changes occur,” he says.
ILS, BSX. Greg Wojciechowski, platform, growth