Bermuda’s new ISAC an all-in-one underwriting & ILS fund structure

New Incorporated Segregated Accounts Companies (ISAC) available under Bermuda law and regulation, will enable insurance-linked securities (ILS) managers, or investors, to operate both underwriting and investment fund activities within a single company structure.

Now, this is a structure that has been talked about numerous times in the insurance-linked securities (ILS) market, as ILS investment managers have sought out efficient ways to structure their businesses and a number of domiciles and structuring or legal firms have proposed bringing the underwriting and fund management within a single vehicle.

Guernsey already has a similar structure available, a hybrid insurance-linked securities (ILS) vehicle, an all-in-one structure that can act as both re/insurer and ILS fund.

Bermuda’s Incorporated Segregated Accounts Companies (ISAC) Act 2019 brings into law a new corporate structure that offers flexibility to numerous business models, with the benefits of a traditional limited companies corporate identity with the efficiencies offered by segregated account structures.

Bermuda has quietly brought the ISAC structure through its regulatory process and now the Bermuda Monetary Authority (BMA) has issued guidance notes for the vehicle, which make it clear there are ambitions to promote the ISAC as an all-in-one ILS management operational structure.

The BMA’s guidance explains that companies engaged in insurance, reinsurance or investment fund business, or companies that have been approved by the Bermuda Minister of Finance, can register as an Incorporated Segregated Accounts Company (ISAC) under its ISAC Act.

The ISAC can then establish Incorporated Segregated Accounts (ISAs), essentially Incorporated Cells, which are an incorporated segregated account containing assets and liabilities that are legally separated from the assets and liabilities of the ISAC and other ISA’s.

Which sounds ideal in the world of collateralised reinsurance and ILS fund management, or for large direct investors looking for an ILS fund of one structure that they can also underwrite, or invest in, collateralised reinsurance and retrocession through.

“ISAs will be self-dependent and self-governed, such that they each have their own board of directors, and only the assets of a particular ISA may be applied to the corresponding liabilities of that ISA,” the BMA explains, which may make the ISAC structure even more attractive to ILS fund managers.

The BMA explains how it would see the insurance-linked securities (ILS) market using the ISAC stucture.

“A platform for the Insurance-Linked Securities (ILS) market to have ISAs writing insurance business and ISAs conducting investment fund business to operate within the same ISAC structure.

“ISAs registered/authorised to conduct investment fund business will have an opportunity to raise money from third-party investors through the offer of shares or other securities and the funds raised can be used to collateralize (re)insurance written by ISAs conducting insurance business all within the same ISAC structure.”

That sounds like an extremely efficient way to establish ILS investment management operations, for an ILS fund manager looking to operate multiple funds and enter into multiple collateralised reinsurance transactions, or for a major investor looking to have a single portfolio of segregated and independent collateralised reinsurance investment assets.

It could also be useful to an insurance manager looking to rent out independent and segregated cells to fund managers and investors for reinsurance transactions.

With this guidance now published it’s presumed that the ISAC structure is now available to be registered in Bermuda.

It will be interesting to see what the uptake is like.