With the entry of multiple new domiciles to the insurance-linked securities (ILS) arena in recent years, the most important feature of this is the plurality of choice it makes available to sponsors, rather than the chance of subsidies being made available, Mathieu Halm, Head of Retrocession and Strategy at CCR Re explained.
“The emergence of new jurisdictions, as seen in Europe with London and Paris as well as more recently in Latin America with Brazil, holds the opportunity of generating optionality to the benefit of the sponsors. In the end, this is the most important aspect,” Halm explained.
Adding that, “The objective here is not to present an opportunistic approach that entails scraping together insignificant gains on structuring thanks to subsidies provided by one or the other authorities. Much greater benefit is to be had since, if they achieve their ambitions, the plurality of choice offered by these marketplaces will increase the agility of sponsors and enable them to gain easier access to the capital markets.”
We couldn’t agree more.
The entry of new domiciles into insurance-linked securities (ILS) is critical for the continued expansion of the market as it allows sponsors to select locations for transactions that may be more suited in terms of currency, time zone, and cultural or brand fit.
It’s also positive for investors as well, providing greater choice on where assets are deployed to and enabling some of the larger investors of the world to keep their assets closer to home, as is often their mandates.
The marketplace once counted only the Cayman Islands as its domicile for issuance, then saw Bermuda rise and dominate (as it continues to), while Ireland also made some slow headway with a number of cat bond sponsors.
Now, in the last few years, we have seen catastrophe bonds issued out of Singapore in growing numbers and a handful in London, while Hong Kong is ready to support issuance, Brazil has recently introduced an ILS regulatory regime, and locations like Guernsey, Malta, Gibraltar and Paris, France can all support insurance-linked securities (ILS) issuance in certain forms as well.
Choice among issuance domiciles for ILS such as catastrophe bonds, or collateralised reinsurance, is also critical to encourage more innovation, as there is nothing like competition to stimulate a desire to do better and to evolve regulatory and structural practices in the market.
It’s not always easy to attract sponsors to new locations, hence the use of subsidies and grants, but Halm notes that most importantly, “the jurisdictions must demonstrate the pertinence of their major strengths, underscore their competitive advantages and become more attractive.”
“It will also be required that we understand and master the advantages and disadvantages of an increasing number of jurisdictions,” Halm continued.
Saying that, “The cedents and their advisors will surely enjoy comparing the different options and assessing whether they comply with their objectives. This will no doubt encourage innovation. Industry can only welcome these newfound initiatives.”
Halm recognises the opportunity for some domiciles as well, noting in particular that for Hong Kong “the opportunities are enormous” given its location and connectivity to China.
But Halm also rightly points out that for any ILS domicile to be truly successful it must have the local talent to support this.
“It is essential to provide sponsors as well as investors with adequate access to local service companies—in addition to a regulatory framework—to ensure the success of their issuances but also to monitor and manage operations over time. What is required, therefore, is a microcosm of skills combined with a diversity of players. This is one of Bermuda’s strong points,” Halm explained.