Bermuda ILS Market Report shows increasing use as ILS domicile

A new quarterly publication from the Bermuda Monetary Authority, the first edition of which was published yesterday, shows that Bermuda is increasingly being used as a domicile for insurance-linked securities (ILS) and catastrophe bond issuance.

The Bermuda ILS Market Report will be published on a quarterly basis and looks at trends in the ILS and cat bond market with a focus on Bermuda as a leading domicile for the sector. The first edition of the report shows that Bermuda, as a jurisdiction for the creation, listing and servicing of ILS, accounted for more than 62% of the most recent quarters global ILS and cat bond issuance.

Craig Swan, Managing Director of Supervision at the Bermuda Monetary Authority commented on the launch of the new publication; “The Bermuda ILS Market Report offers data-driven analysis and insights both to industry and members of the public looking for information on this rapidly-growing segment of the alternative risk transfer market. Initial reaction from industry is that there will be significant value from the content of this publication. This is in terms of the regular release of highly relevant data and the depth of macroprudential analysis provided.”

The report looks at Bermuda’s role in the ILS space and discusses its progress in becoming one of the leading domiciles for issuance, listing and servicing of new transactions in the context of global ILS market developments.

Bermuda was involved in over 62% of issuance during the third-quarter of 2013, a quarter which saw global ILS and cat bond issuance reach $1.7 billion, more than double the $800m issued in Q3 of 2012. Bermudian special purpose insurers (SPI’s) underwrote $1.1 billion of new property and catastrophe risk in the quarter through 7 catastrophe bond transactions during the quarter. The BMA licensed 9 SPI’s in total during the quarter, showing that ILS is the dominant use of SPI’s currently.

In terms of the outstanding ILS market, of over $19 billion at the end of the third-quarter, Bermuda currently accounts for around 40% of that total. Approximately $8 billion of the outstanding ILS market volume comes from Bermuda domiciled SPI’s and the BMA has licensed 87 SPI’s in total since 2010.

The chart below, taken from the report, which shows the quarterly issuance of Bermuda based ILS and cat bonds over the last few years clearly shows the strong growth that the domicile has experienced. Once the fourth-quarter is reported Bermuda should see well over $4 billion of ILS issuance for the year.

Quarterly ILS Issuance by Volume and Number of
Deals (In US$ billion) – Bermuda only

By the end of the third-quarter Bermuda had also increased the amount of ILS and cat bond notes listed on the Bermuda Stock Exchange, totaling 63 ILS and cat bond listings, 34 of which are transactions (rather than the programmes which have no nominal value) consisting of 43 tranches with an aggregate nominal value of $7.9 billion. Seven new ILS transactions were listed in Bermuda during the quarter.

For the first three-quarters of 2013 the total issuance of ILS and cat bonds through Bermuda domiciled SPI’s stood at $3.5 billion.

Bermuda’s regulatory and legislative regime as well as its home to a large proportion of the global reinsurance market has assisted its growing role in ILS and catastrophe bonds. Lixin Zeng, CEO of AlphaCat Managers, the third-party reinsurance capital management unit of Validus Holdings, explained this well at a recent BMA event; “Bermuda offers what we like to call the right-sizing of regulation, which is establishing an optimal balance between investor opportunity and ensuring the financial security and integrity of the firms you regulate. Bermuda has done the best job of achieving the optimal balance for this compared to other financial regulatory regimes of the world.”

You can download a full copy of the first edition of Bermuda ILS Market Report via the BMA website.