Bermuda SPI’s remain focused on U.S. and property lines of business

Special purpose insurance (SPI) vehicles domiciled in Bermuda remained largely focused on ILS and collateralized reinsurance transactions transferring risks emanating from the United States and from property lines of business, according to data from the regulator.

The Bermuda Monetary Authority (BMA) said that special purpose insurers (SPI’s) made up 16% of statutory filing data, reflecting the growing class of business that ILS constitutes on the island.

The BMA introduced its SPI regulations in 2009 and today the vast majority of ILS business, such as catastrophe bonds and collateralized reinsurance transactions, remains transacted using Bermuda domiciled SPI’s and cell structures.

The BMA’s data shows that in the underwriting year to December 31st 2016 the majority of risks underwritten using Bermuda SPI vehicles were from the United States.

In fact 69% of risks assumed by a Bermuda SPI were from North America (which includes U.S., Canada and Bermuda), followed by Europe at 25%, Japan at 3%, Australia and New Zealand 2%, and others. Of the North American risks the majority will be U.S. property catastrophe reinsurance covers, reflecting the importance of this marketplace.

In use of Bermuda SPI’s, catastrophe bonds remain the main transaction type at 44%, collateralised reinsurance at 36% and sidecars 18%, while other transactions structures made up just 2% of the total.

The ILS sector remains largely focused on property lines of business and the BMA’s data highlights this well.

While there were 21 statutory lines of business underwritten by Bermuda SPI’s in the year under analysis, more than 90% of the premiums involved were underwritten for property lines.

Property catastrophe risks make up the bulk of that, followed by terrorism, property damage and business interruption, agriculture, marine, mortgage, property retrocession, aviation and energy risks.

There is a modicum of casualty risks underwritten in the ILS space and the Bermuda SPI data reflects this, with general liability risks leading the way, followed by professional liability, finite reinsurance, credit & surety, workers compensation and others.

However this is a very small component and most of this is not really going to ILS investors, rather to other users of SPI structures.

With the ILS business continuing to grow in 2017 and the Bermuda SPI vehicle remaining the most popular structure so far this year, we are likely to see the overall share of statutory filing data premiums increase when the BMA releases this year’s data.

It will be interesting to see whether the diversity within the vehicles increases, or at least the volume of premiums in assumed from business underwritten in other regions and other lines of reinsurance.

Join us in New York in February 2018 for our next ILS conference