Bermuda seeks to capitalise on leading ILS domicile position

Bermuda was selected as the domicile of choice for 57% of insurance-linked securities (ILS) during 2014, leading to nearly $16 billion of insurance-linked listings on the BSX, and now the island wants to capitalise on this position as leading ILS domicile.

Bermuda positioned itself early on as a domicile with the regulatory and legislative environment required to allow ILS vehicles to thrive. Along with specialist service providers, a listings platform in the Bermuda Stock Exchange (BSX) and being the home to many sponsors and ILS investment managers, Bermuda has cultivated a community which attracted ILS to its shores.

However Bermuda recognises the threat posed by other domiciles around the world which seek to tap into the ILS and catastrophe bond business, by themselves becoming hosts to issuing vehicles and ILS structures.

BSX President and Chief Executive Officer Greg Wojciechowski recognised that “Bermuda must continue to innovate to remain ahead of the curve and retain its position as the premier ILS domicile in the world.”

Wojciechowski noted that domiciles such as Malta, Gibraltar and Puerto Rico are all targeting ILS business, at the same time as the more established players such as the Cayman Islands, Guernsey and Dublin continue to seek to attract this business to their shores.

The Bermuda Stock Exchange (BSX) is a leading reason for the islands success in ILS business, quickly adopting processes which made listing ILS and catastrophe bond vehicles quick, cost-effective and efficient. Investors value the transparency and liquidity that a listing provides and the BSX has benefitted greatly from this.

The BSX closed out 2014 with almost $16 billion of insurance and reinsurance-linked listings (we detailed them all here), largely catastrophe bond vehicles, but with a number of listed ILS funds and a growing number of reinsurance sidecar vehicles.

The dominance of the BSX in attracting ILS underscores Bermuda’s “position as the premier jurisdiction in the world for the setup, listing and support of ILS structures,” Wojciechowski said.

In 2014 alone, the BSX saw increased its ILS listings volume by 53%, from 77 in 2013 to 118 in 2014. The value of these listed ILS securities jumped to $15.91 billion from $9.71 billion from the same period a year earlier.

“Bermuda has proven time and again to be an innovative environment that encourages the growth of all forms of ILS – from catastrophe bonds to sidecars and collateralized reinsurance vehicles,” commented Wojciechowski. “Bermuda has nimbly responded to changes in the industry to offer its global clientele modern and efficient solutions for their commercial needs.”

“The jurisdiction has positioned itself at the forefront of the global development of the ILS asset class and the outstanding amount of ILS issued in Bermuda represents 57% of the worldwide stock of ILS,” he added.

The success of Bermuda’s ILS business accelerated in 2009, when the Bermuda Monetary Authority amended its existing insurance legislation, in order to better support and facilitate the setup of special purpose insurance vehicles, making the process more straight forward.

“The regulatory framework and the operational infrastructure in Bermuda offers institutional investors a level of comfort that no other jurisdiction can provide. The Island’s deep experience and longevity in supporting the ILS sector has contributed to Bermuda becoming a centre of excellence and the jurisdiction of choice for the ILS market,” commented Brad Adderley, Partner at lawfirm Appleby (Bermuda) Ltd.

On top of the simple and efficient legislation, Bermuda has become a home to many of the leading service providers and ILS deal and asset class facilitators in the industry, including accountants, attorneys, fund administrators, structures and investors. Additionally the continued efforts of the Bermuda Monetary Authority and the BSX solidify the islands leading ILS domicile position.

“This cottage industry has been cultivated from Bermuda’s experience in the reinsurance industry that has evolved to support the ILS sector,” added Wojciechowski. “This existing foundation makes Bermuda the intuitive place to list ILS structures.”

Commenting on the important role that Bermuda and the BSX has played for the ILS and catastrophe bond industry as a whole, Paul Schultz, CEO of Aon Benfield Securities explained; “Maintaining liquidity in the ILS sector is hugely important to sustaining this growth, and in this regard the BSX has since 2009 been very helpful. The listing of catastrophe bonds on the BSX has become an efficient, well regulated process, and the exchange has proved itself in being able to house the expertise necessary to satisfy the demands both of our clients and ILS investors.”

Bermuda will for the third year host an ILS focused conference and networking event, ILS Bermuda Convergence, as it seeks to demonstrate the valuable role the island has created within the ILS market and asset class.

Choice is everything in any marketplace and the entry of new domiciles is good for everyone, even Bermuda from the point of view that competition forces innovation and continued excellence from market leaders.

Bermuda has positioned itself as a hub for ILS and with this commitment to capitalise on the role it is hoped that the island’s ILS specialists continue to bring new initiatives that make ILS issuance and management even more efficient for market participants.