The Bermuda First initiative has now released its long awaited report which looks into Bermudas future and how to make it a success. The initiative is a public-private effort jointly funded by the Bermudian government and some of the largest businesses in Bermuda (including reinsurers). The purpose was to better understand Bermudas economic position and to come up with ideas to ensure continued growth and prosperity. Not unsurprisingly this has included some mention of reinsurance and ILS.
Bermuda has been pushing to try to increase its share in the insurance-linked securities market lately, in recent years the Cayman Islands has taken over the role of domicile of choice for catastrophe bond transactions. A month ago we wrote about the new regulations being introduced by the Bermuda Monetary Authority to try to make it easier to encourage issuers to base their cat bond SPVs on the island. Now this new report is also calling for Bermuda to take a larger slice of the ILS pie.
The report highlights the following issues which have hindered growth of the ILS market in Bermuda:
- Limited understanding of ILS by foreign regulators and policy makers
- The lack of standardized contracts for ILS
- The lack of a fully fleshed-out regulatory framework for ILS in Bermuda
- The relatively small scale of the market in Bermuda, which has increased the costs of constructing ILS. For example, to date, there are few legal firms in Bermuda that have extensive expertise in ILS and can hence produce the legal documents quickly and cheaply.
The report highlights these areas of opportunity where Bermuda should continue working to promote and grow the ILS market:
- Supporting the BMA working group
- Empowering the BMA to continue to build a rigorous regulatory framework for ILS
- Encouraging Bermudian companies to create an independent corporation, akin to the U.S. Insurance Services Office, that would develop standardized ILS contracts
- Pulling together the Ministry of Finance, the BMA, and trade associations to help educate foreign governments and regulators about the benefits of ILS.
These are positive areas to work on and hopefully the Bermudian government and reinsurance industry will take heed and work together to make Bermuda an attractive proposition for issuers to domicile their ILS SPVs in the future. In the past it did seem as if Bermuda thought the market would come to it due to the density of reinsurers domiciled there. With that changing as reinsurance companies and brokers have found opportunities to domicile elsewhere in the world they need to work to promote themselves as a centre of excellence in insurance-linked securities and catastrophe linked transactions. After all, they have a much more mature infrastructure to support these deals than the Cayman Islands so one can only think that the regulatory environment and cost was putting issuers off. If they can change that perception, work on becoming a launching pad for deals and encourage talent back they could see their slice of the market grow considerably.