In another move which should help to increase the attractiveness of Bermuda as a domicile for catastrophe bond and insurance-linked securities issuers, the Bermuda Monetary Authority (BMA) has announced a reduction in the licence fees for Special Purpose Insurers (SPI’s). The annual registration fee for an SPI has been almost halved from $11,600 down to just $6,000 effective from the 1st April 2012.
Special purpose insurers are an entity which assumes insurance or reinsurance risks and is typically fully funded through debt issuance or some other form of financing or collateral. The repayment rights of the debt or financing mechanism are subordinated to the re/insurance obligations of that vehicle. SPI’s are the special purpose vehicles used in the majority of catastrophe bond and insurance-linked security transactions which domicile in Bermuda.
Shelby Weldon, the BMA’s Director, Insurance, Licensing & Authorisations said; “The ability to establish SPI’s here within our insurance classification system is another option for the market to use Bermuda’s extensive alternative risk transfer expertise.”
Bermuda has been growing its share of the cat bond and ILS market over recent years as it seeks to attract issuers to the island. These efforts have been showing positive results and they are a growing domicile for SPI formation. 23 new SPI’s were licensed in 2011, up from eight in 2010 and one in 2009 when the BMA established the regulatory framework to accommodate SPI’s. During January and February 2012, three SPI’s had already received a licence in Bermuda.
Mr. Weldon continued; “Since SPI’s are fully funded, the Authority also applies a proportionate level of supervision to such entities, which appropriately is different from what we would apply to say, a large Class 4 commercial insurer. Therefore, this fee adjustment also recognises that distinction, since our fees are directly related to the cost of supervision, further reinforcing Bermuda’s competitive position to support SPI’s.”
The reduction in registration fees has been well received by those with an interest in the success of Bermuda as a cat bond and ILS domicile.
Brad Adderley, Partner, Corporate & Commercial at Appleby said; “The fee reduction epitomises the proactive approach of the Authority, which was reinforced by the very senior Bermuda contingent that attended the recent Insurance- & Risk-Linked Securities Conference held annually by the Securities Industry and Financial Markets Association (SIFMA). The BMA’s attendance at the conference reaffirms to the market place that Bermuda wants to be the preeminent player in this space.”
Greg Wojciechowski, President and CEO of the Bermuda Stock Exchange said; “Since the coming into force of the new licensing regime for Special Purpose Insurers, the BSX has seen a significant increase in interest from the market for the creation of Bermuda based SPI’s which are used for the issuance of Insurance Linked Securities (ILS). This development has led to a record number of listed ILS issues on the BSX.”
Anything that can reduce the cost of cat bond and ILS issuance will be good for the market and while a saving of $5,600 on the annual registration fee for an SPI may not sound like a lot it could help to attract new cat bond issuers to Bermuda.
Mr. Adderley continued; “Bermuda has made significant inroads into the cat bond market – the reduction of fees will help the island continue to grow this business which will have a positive impact on the Bermuda economy.”
Mr. Wojciechowski added; “The announcement by the BMA to reduce registration fees for SPI structures is a significant development and underscores Bermuda’s firm commitment to provide regulatory and commercially sensible support to the global reinsurance industry. Bermuda has been a partner to the global reinsurance industry for over three decades, a healthy partnership which has resulted in the jurisdiction exhibiting a “silicon valley” effect for specialty insurance. Bermuda is a global leader in the reinsurance industry and developments such as this reduction of fees highlight Bermuda stakeholders’ resolve in providing the environment for that partnership to continue for decades to come.”
Arthur Wightman, Partner, Assurance and Business Advisory Services, Insurance/Reinsurance at PricewaterhouseCoopers said; “Bermuda’s established funds and reinsurance marketplaces make it the optimal jurisdiction for structuring Insurance Linked Securities and other convergence structures. This move by Bermuda’s forward-looking regulator is just one example of how seriously Bermuda is committed to further developing these markets and represents another proactive move by the BMA to commercially practicable regulation. It also reinforces a commitment by the regulator to facilitate speed to market.”