Bermuda still home to the majority of ILS issuance

Analysis from the Bermuda Monetary Authority (BMA) shows that Bermuda’s position as the domicile of choice for the issuance of insurance-linked securities (ILS) transactions remains, with the island being home to the large majority of new issuance.

This message was also reinforced at today’s ILS Bermuda Convergence 2018 conference on the island.

The BMA has released its first-quarter 2018 Bermuda ILS Market Report, which explores the composition of transactions issued in the quarter as well as market trends using Artemis data as one of the inputs.

One thing the report highlights is that Bermuda remains the leading domicile for the issuance of ILS and also other forms of capital markets backed reinsurance, underlined by the fact that 74.5%, or $24.8 billion (according to the BMA’s figures) of total outstanding ILS capacity was issued in Bermuda, as at the end of the first-quarter of 2018.

According to the BMA, Bermuda domiciled SPIs accounted for more than 63% of Q1 2018 issuance, which, as shown by the Artemis Deal Directory and Artemis Q1 ILS market report, is the strongest ever Q1 in the market’s history.

SPIs based in Bermuda underwrote eleven ILS transactions covering natural catastrophes in North America and Asia, as well as unknown perils in Q1. And, the BMA notes that the average size of ILS deals issued in the period was $284.4 million, which is an average increase of $64 million when compared with Q1 2017.

The BMA says that the $64 million increase in the average transaction size is a result of large issuances of over $400 million that were accompanied by some smaller placements, in Q1 2018.

The larger deals highlighted by the BMA include the $500 million IBRD CAR 116 deal that protects against earthquakes in Chile, the $700 million Nakama Re 2018-1 deal that provides reinsurance against Japan earthquake risks, and the $500 million Sanders Re 2018-1 transaction, which offers protection against multiple U.S. perils.

Of the catastrophe bonds outstanding at the end of Q1 2018 and that were issued in Bermuda, the BMA states that the majority, or 63.2% utilised an indemnity trigger structure, with industry loss index structured deals accounting for 28.7% of outstanding Bermuda-issued deals in the period.

The BMA report also notes that the Bermuda Stock Exchange (BSX) accounted for 77.3% of the global market capitalisation of ILS, as at the end of Q1 2018. In total, 104 ILS deals were listed on the BSX with an aggregate nominal value of roughly $25.8 billion, of which just 5.4%, or $1.4 billion were issued by vehicles based in the U.S. and Ireland.

During the first-quarter, eleven new deals that issued were listed on the BSX, with a notional value of $2.7 billion. At the same time, eight deals listed on the BSX matured, with a value of $1.2 billion.

Q1 2018 catastrophe bond and ILS issuance data from the BMA clearly shows that Bermuda remains the domicile of choice for ILS business.

However, the Bermuda market will need to remain innovative and active in the coming months and years as new jurisdictions, such as London, Guernsey and Singapore, look to develop and improve their ILS and collateralised reinsurance capabilities and take a slice of the opportunity.

Don’t forget to download Artemis’ quarterly cat bond market reports, including our latest Q3 2018 issue here.