Bermuda to encourage cat bonds with new rules for SPI’s

The Financial Times reports that the Bermuda Monetary Authority will be announcing new regulation today aimed at improving supervision for Special Purpose Insurers. Bermuda has long been a hub for special purpose vehicles, insurers and has been the domicile for many catastrophe bond deals over the years.

The forthcoming approach to supervision of these entities will demand greater transparency and disclosure around what collateral is being used in a catastrophe bond transaction and the value of that collateral. We expect it to stipulate frequent reporting on collateral adequacy among other things.

In recent years the majority of cat bond deals seem to have been domiciled in the Cayman Islands. This move from Bermuda seems to be an attempt to capitalise on the changing methods used to attract investors to deals by making the collateral and swap counterparty much more transparent. Bermuda has lost favour as a domicile of late, perhaps this new supervisory information can help to encourage sponsors back to the island.

We’ll bring you details on the announcement when it emerges.