8 April 2015ILS

ILS and hedge funds remain fashionable in Bermuda

This is in contrast to the overall trend in 2014 when the formation of life reinsurers constituted the dominant trend.

Yet there is a question as to whether convergence will continue to drive registration activity throughout the year.

In January and February 10 insurance or reinsurance companies registered in Bermuda, four of which were special purpose insurers (SPIs), presumed to be mostly dedicated to some form of ILS or collateralised re/insurance business.

Two hedge fund-sponsored insurance companies, another strong point of Bermuda’s evolving reinsurance market, were also launched during January/February.

Bermuda’s insurance company registrations have been increasingly dominated by the formation of SPIs for ILS and collateralised reinsurance business over the last few years. In 2013, a total of 51 SPIs were registered in the domicile, as the ILS market experienced rapid growth and ILS fund managers pressed on with their expansion strategies.

In 2014 these figures slowed down, but the year still finished with a respectable 28 SPIs registered on the Island. As SPIs are typically recycled over a number of years for catastrophe bonds issuances, the slowdown in the registration of this type of vehicle was, arguably, to be expected.

The growing importance of the role that ILS and collateralised structures play in global reinsurance, and more locally the Bermuda market, can be highlighted by this sustained high frequency of SPI registrations.

The SPI registrations in January and February included Centuriae Re, registered with Horseshoe Management in Bermuda. This is quite likely to be an ILS or collateralised reinsurance vehicle of sorts. Centuriae Re is believed to be some kind of new ILS or reinsurance capital markets initiative.

Valins I is an embedded value life insurance securitisation from Aurigen Reinsurance. Securis Re LCM is a SPI vehicle for London-headquartered ILS manager Securis Investment Partners.

Skuld II Reinsurance (Bermuda) is assumed to be related to protection and indemnity (P&I) insurer Skuld. Sandell Re is a new Class 3A hedge fund strategy reinsurer backed by hedge fund manager Sandell Asset Management Corporation.

Third Point Reinsurance (USA) is the Class 4 reinsurance vehicle for Third Point Re’s US expansion.

Other registrations so far for the year include Class 1 Bluebird Reinsurance Company, Class 2 Medocean Insurance, Class 3 Brisk Insurance Company, Class C Nomura Americas Re and broker Winkelvoss.

The question remains as to whether the convergence between reinsurance and capital markets will continue to influence registration activity in the domicile in 2015.

It looks likely that this trend will persist, despite the fact that the re-use of collateralised SPIs and ILS mean registration figures may not increase exponentially year on year.

2014 trends

To turn the clock back, Bermuda’s financial regulator the Bermuda Monetary Authority (BMA) registered 89 new insurance entities in 2014 and there was strong growth in the life reinsurance sector.

The BMA said four new Class E insurers, each required to have total assets of more than $500 million, started business in 2014, with combined assets of more than $2 billion.

Shelby Weldon, the BMA’s director, Licensing and Authorisations, said: “The most significant area of growth in 2014 was in our long-term (life) sector, with four new Class E insurers, five Class C insurers, and one Class A insurer establishing in Bermuda during the year.

“This compares to six long-term registrants in 2013—three Class C insurers, two Class B insurers and one Class A insurer.”

A change in US rules—which effectively signalled a vote of confidence in the Bermuda market—had a positive impact on start-up activity.

“An influencing factor in the growth of our long-term sector was the National Association of Insurance Commissioners’ (NAIC) granting conditional Qualified Jurisdiction (QJ) status to Bermuda in December 2013,” Weldon said.

“QJ status allows reinsurers from a particular domicile to reinsure US risk on a non-discriminatory basis and benefit from reduced collateral requirements.”

The NAIC is the US standard-setting and regulatory support organisation created and governed by the 50 US State insurance regulators, the District of Columbia and five other US territories.

In December 2014, the NAIC Executive and Plenary Committee granted Bermuda full QJ status effective January 1, 2015.