BSX: onwards and upwards


Greg Wojciechowski

BSX: onwards and upwards

Bermuda Stock Exchange president and CEO Greg Wojciechowski has been positioning Bermuda as a leading jurisdiction for listing of insurance-linked securities. Here he outlines the exchange’s successes.

At the Bermuda Stock Exchange (BSX) we have been welcoming insurance-linked securities (ILS) to list on the stock exchange since legislative changes in 2009 simplifi ed the creation of special purpose insurers (SPIs). As a result, in August this year our ILS listings topped $5 billion in market capitalisation for the first time.

"Over the five years ending in 2011, the Swiss Re Global Cat Bond Performance Index posted a return of 9.09 percent-- excellent in the context of today's market."

To put this in context, following the legislative changes in July 2010, the BSX’s cat bond listings topped $1 billion for the first time. By the last day of 2011, the BSX had 25 ILS listed with a total value of $3.373 billion. Having now reached the $5 billion mark, we can say that we have come a long way.

The change in legislation came about after Bermuda recognised a need from its insurers and reinsurers to streamline the process of setting up ILS. In October 2009, Bermuda legislation changed to make it easier to set up SPIs, which are used to set up catastrophe bonds and sidecars.

At the BSX, what we see are mostly listings of catastrophe bonds, but these are only the tip of the iceberg when it comes to the ILS space in Bermuda.

Apart from catastrophe bonds which choose to list on the BSX, there are other ILS instruments such as industry loss warranties (ILW), sidecars and collateralised plays, much of which are placed privately and attract very little publicity.

Bermuda entered the ILS space from almost a standing start in 2009 as a result of the new legislation, which was spearheaded by the Bermuda Monetary Authority (BMA), to make it easier to set up SPIs. In March 2012, the BMA announced it was halving the registration fees for SPIs, reducing the registration fee from $11,600 to $6,000 from April 1 this year.

According to the BMA, in 2009, one SPI was formed, in 2010 eight, in 2011 23, and so far in 2012, 13 have formed including:

Blue Water Re Ltd, January 17

PartnerRe Catastrophe Fund Ltd, January 23

Queen Street V Re Ltd, February 3

Arden Indemnity Ltd, March 28

Everglades Re Ltd, April 2

AlphaCat Re 2012, Ltd, May 15

Pendulum Re II Ltd, May 23

Orange Grove Re Ltd, May 25

Timicuan Reinsurance III Ltd, May 28

Pangaea Reinsurance IV Ltd, May 28

While we feel that 2011 was the year that Bermuda made its mark and solidified its position as a leader in servicing ILS structures, 2012 has been a great year both for Bermuda as a jurisdiction and the BSX, as well as for the ILS space in general.

Already there has been speculation that there will be between $5 and $7 billion of issuance in 2012. If the number goes over $5 billion, it will be the first time since 2007 that this has happened.

Aon Benfield’s Insurance-Linked Securities Second Quarter Update 2012 revealed that catastrophe bond issuance for the period reached $2.1 billion as investors continued to deploy capital into the sector, reaching near-record levels.

The report said that the market retained strong momentum from the first quarter, when ILS issuance reached record levels, with $1.5 billion of deals brought to market and a total of seven transactions closed during the second quarter of 2012, featuring both new and repeat sponsors.

"Aon Benfield said that issuance for the first half of 2012 stood at $3.6 billion, which was just short of the all-time high of $3.8 billion achieved during the same period in 2007."

Aon Benfield said that issuance for the first half of 2012 stood at $3.6 billion, which was just short of the all-time high of $3.8 billion achieved during the same period in 2007. The pipeline for the remainder of 2012 remains strong, something we at the BSX are pleased to see, with healthy levels of capital inflows from both seasoned investors and newer entrants to the ILS sector across the market.

The reason for the interest is that ILS such as cat bonds have a low correlation to equities and good returns; over the five years ending in 2011, the Swiss Re Global Cat Bond Performance Index posted a return of 9.09 percent—excellent in the context of today’s market.

In Bermuda, we now have the infrastructure to deal with growing demand for the issuance and listing of cat bonds and are continuing to evolve to meet market needs. As the world’s third largest reinsurance market, home to 1,400 re/insurance companies with total assets of $442 billion, we see Bermuda as a natural place for establishing and listing ILS structures.

In fact, many of our re/insurance companies have issued cat bonds or set up special purpose vehicles such as sidecars, so companies, lawyers and advisors in Bermuda have an excellent track record of experience and knowledge in this area.

Due to a concerted effort on the part of Bermuda, we are now seeing an interest from beyond the Island in either setting up or listing catastrophe bonds from outside the jurisdiction—a development that is once again proving that Bermuda is setting the pace in the catastrophic risk transfer market.

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

Wells Fargo Insurance Trust team named ‘Global Best Bank for Insurance Trusts’

O ver the past 13 years, the Wells Fargo ILS and Reinsurance Trust group has established billions of dollars of trusts used to collateralised ILS, reinsurance, and captive programmes worldwide. The cost savings realised by our clients using the WF Trust in lieu of letters of credit (LOCs) is staggering.

There are many benefits to using the Wells Fargo Trust in lieu of LOCs to collateralise such programmes. They include:

• Saving between 80 percent and 98 percent of LOC fees

• Keeping corporate credit lines available

• Retention of the interest income of assets held in trust

• Retention of ownership of the assets in trust

• Ease of set-up and renewal

The trust concept is simple. Rather than posting a letter of credit as collateral, our clients deposit cash or cash equivalents (the same cash that they would likely use to collateralise an LOC) into a legal trust account where the depositor “owns” the money and the transformer (for ILS deals) or cedent (for reinsurance) is the beneficiary of the trust. From a regulatory and carrier perspective, this satisfies the collateral requirement.

The Wells Fargo ILS and Reinsurance Trust team has the well deserved reputation as the most knowledgeable and responsive trust group in the industry. So if you are posting LOCs for ILS, Reinsurance, or Captive programmes, or if you are finding your current trustee less than ideal, consider using the ILS or Reinsurance Trust, and please consider Wells Fargo as trustee.

For more information please contact Robert Quinn on:

Tel: +1 203-293-4394



ILS, BSX, reinsurance, Bermuda, alternative capital

Bermuda Re