Bermuda SPI registrations fall in 2019, but ILS licensing activity still strong

The number of special purpose insurers (SPI’s) registered in Bermuda fell in 2019, in-line with activity in the insurance-linked securities (ILS) sector. But overall new licenses for ILS related vehicles remained very strong.

Despite the slight dip in SPI’s, the registration of insurance-linked securities (ILS) and catastrophe bond related vehicles continues apace in Bermuda.

The island continues to dominate global ILS market activity and with new initiatives such as its collateralised reinsurance vehicle set to provide more options for ILS funds and investors, Bermuda is expected to remain a significant force in ILS for the foreseeable future.

In 2019 Bermuda saw 20 SPI’s registered during the year, the majority being for catastrophe bonds and other similarly structured ILS deals such as mortgage reinsurance securitisations.

The 20 SPI’s registered in Bermuda during 2019 compares to 28 in 2018, 24 in 2017 and 17 in 2016.

The slow-down is no surprise, as ILS activity and growth globally was relatively static last year on the back of the consecutive years of major catastrophe losses.

The fact that SPI’s are multi-use vehicles is another factor as well. So, for example, catastrophe bond issuers can be used for different series of notes every year, meaning new vehicles are not required on an annual basis.

While SPI registrations did dip slightly in 2019 in Bermuda, there are plenty of other registrations under the Bermuda Monetary Authority (BMA) that were also insurance-linked securities (ILS) related.

These include the very first registration under the new collateralised insurer class, Lodgepine Reinsurance Limited, which was registered in November for the Markel Corporation owned retrocession focused ILS manager Lodgepine Capital Management.

In addition there were some Class 3A and 3B reinsurance companies registered, some of which are likely involved in collateralised or ILS business in Bermuda, such as the PIMCO ILS team’s Newport Re reinsurance vehicle.

Other underwriting vehicles that are backed by third-party capital, following an ILS-style or collateralised reinsurance strategy, include two Class C re/insurers registered for Athene Life Re’s sidecar vehicle for life and retirement investment opportunities, Athene Co-Invest Reinsurance Affiliate (ACRA).

Two ILS focused agents were registered in Bermuda in 2019.

The first was for New York investment manager Stone Ridge Asset Management, with Longtail Underwriting Ltd. set up as the manager continues to roll-out its private Longtail reinsurance platform.

The second was for former CATCo employees Rick Montgomerie and Charlie Vaughan, with an agent registered as part of their new specialist reinsurance focused ILS fund manager and investment strategy Chard Re Investment Management Ltd.

Under the insurance manager class, Lodgepine Capital Management Limited was registered in December, for the retro reinsurance investment manager established by Markel.

So despite the dip in SPI registrations, it’s clear that ILS market activity domiciled in Bermuda remains very strong, with new registrations across the market platforms of leading players.

As the ILS market continues to recover from the losses of recent years and ILS funds return towards growth trajectory’s, while catastrophe bond issuance has started the year strongly, it looks like 2020 may see a raft of new registrations in Bermuda.

It will be particularly interesting to see how many new collateralised insurer class registrations occur, as SPI’s may slow if managers shift their preference towards the new vehicle designed as a multi-transaction structure for executing collateralised reinsurance contracts.

Read about many of the Bermuda registered SPI’s and other structures in our catastrophe bond Deal Directory and our reinsurance sidecar listings.