Leading the world in ILS

13-09-2019

Leading the world in ILS

Bermuda is known as the world’s risk capital for good reason, and it remains the dominant force in ILS globally, says Greg Wojciechowski, president and chief executive officer of the Bermuda Stock Exchange.

Bermuda has developed a global leadership position in property catastrophe reinsurance coverage, and the creation and evolution of the captive insurer. Now Bermuda’s experience in the insurance and reinsurance space has given rise to the Island’s being a centre of excellence for the creation, support and listing of the global insurance-linked security (ILS) industry. 

Bermuda’s global insurers and reinsurers provide important insurance and reinsurance market support in all the world’s major economies and for decades have been partners to the global insurance industry, providing innovative solutions for our clients and the markets we serve. 

Bermuda’s market expertise lies in highly volatile business lines: classes of business that are characterised by infrequent claims with high severity.

In addition to reinsurance, examples of such business include professional liability, directors and officers liability, energy, natural disaster risk terrorism and cyber risk. These are lines of business which many insurers find difficult to write and as a result, Bermuda’s companies have been able to fill a market need.

ILS is a non-correlated asset class which continues to grow in scope and geographic diversity and aligns with the United Nations Sustainable Development Goals as a sustainable investment due to its role in helping private and public organisations to build resistance to natural disasters and climate change.

Pension fund investors from several jurisdictions have repeatedly highlighted the environmental, social and governance (ESG) qualities of ILS investments and catastrophe bonds which provide essential financing and liquidity when natural disasters strike. Such investments not only have the potential to protect communities and infrastructure in times of emergency but also help reduce what is known as the ‘protection gap’—uninsured or underinsured risks—and increase resilience to such risks generally, even in times of prosperity.

Sustainability

With such obvious ESG credentials, ILS investments are the ideal asset class for investors wishing to incorporate sustainable finance into their portfolios. The Bermuda Stock Exchange (BSX) is the world’s leading exchange for the listing of ILS: of the 1,014 securities listed on the BSX, ILS comprise 379 listed issuers, with $34.3 billion in market capital outstanding.

Many of the BSX’s listings are particularly well advanced in developing their ESG potential. Forward-thinking ILS fund managers, hedge funds and asset managers based in Bermuda have long embraced sustainable investment principles and offer the potential investor the confidence of cemented credentials, impressive track records, and an established commitment to ESG values.

The catastrophes of the last few years including hurricanes and wildfires have not diminished investor appetite for the ILS market.

The popularity of alternative risk capital and ILS in recent years has seen a fundamental shift in the way the reinsurance sector operates. While it has presented some challenges for an industry that has always prided itself on strong client relationships, it has also spawned creativity and innovation.

Rather than seeing alternative capital as a direct challenge to its reinsurance business, Bermuda set up funds for third parties to invest in catastrophe risk, and it is supporting the fund managers who are taking the next step of setting up their own reinsurance companies.

The global ILS market is in a constant state of evolution with new challenges and new risks being considered for transfer into the capital market via ILS structures. 

All this is against the backdrop of the industry doing its part to help narrow the gap of insurance protection for those countries and industries in need of vital insurance support at their most desperate time of need. Access to capital markets interested in the ILS asset class will continue to help drive sustainability and resilience across the globe.

Convergence

As the leader in the ILS market, it’s no surprise that the Island hosts the annual Convergence event, held in October, with hundreds of attendees from more than a dozen countries flying in each year.

Now in its seventh year, Convergence is a networking event covering the alternative reinsurance, ILS, and collateralised reinsurance landscape. It’s an event at which providers, investors and regulators gather to learn the latest market trends, forge relationships and develop new listings for specific coverages.

The idea of anchoring Bermuda as a centre of excellence for the creation and listing of ILS structures and hosting an exclusive event in Bermuda was conceived by ILS Bermuda, which comprises industry executives working together on a volunteer basis to promote Bermuda’s expertise in the sector. The Bermuda Business Development Agency, as well as overseas and local corporate sponsors, supports the event.

While other jurisdictions such as the US and London are keen to emulate our success, it is clear that Bermuda is far out in front in terms of volume and expertise. This is in large part thanks to our many competitive advantages such as speed to market, our expertise in property-catastrophe risk and catastrophe modelling, actuarial and underwriting, our first-class regulatory regime, and world class infrastructure and technology, as well as Solvency II equivalence and NAIC recognition.

The future is bright for ILS and the alternative risk transfer market—and for the foreseeable future Bermuda will be the epicentre of this market.

To learn more about ILS Bermuda and the annual Convergence Event, visit www.ilsbermuda.com

To learn more about the BSX visit www.bsx.com 

Greg Wojciechowski, Bermuda Stock Exchange, United Nations Sustainable Development Goals

Bermuda Re