Regulatory oversight & institutions sustain Bermuda’s ILS role: Estera (Bermuda)

While other jurisdictions are increasingly keen to realise the benefits of facilitating ILS transactions, regulatory oversight and institutions have helped Bermuda maintain its place as the leading domicile for the asset class.

This is according to Alison Dyer-Fagundo, Managing Director of Estera (Bermuda) and Sherman Taylor, Associate Director, Estera (Bermuda), who spoke with Artemis about the Bermuda ILS market, which continues to flourish.

They explained that approximately 80% of the world’s public ILS are listed on the Bermuda Stock Exchange (BSX), which includes ILS vehicles not domiciled in the country.

“Regulators in the Bermuda market typically combine prudent rules and regulations with an acceptable level of flexibility and foresight to accommodate innovation and creative products without compromising regulatory oversight.

“Bermuda as a jurisdiction and the Bermuda Stock Exchange (BSX) as an institution, has each played an important role in the development of ILS as a trusted, mainstream asset class globally,” said Taylor.

In 2019, Bermuda continued to attract a record number of ILS listings, including the world’s first terrorism cat bond, Baltic PCC Limited, which became the first UK domiciled cat bond and the first terror bond to list on the BSX.

Alison Dyer-Fagundo commented on this issuance: “The Baltic PCC Limited listing demonstrates that even issuers in larger financial centers such as London respect Bermuda as a jurisdiction and recognize the great value of using Bermuda and listing on the BSX.”

As well as new and complex risks, the Island’s regulatory oversight and its institutions also support the issuance of cat bond lite structures, a continuing sub-sector of the catastrophe bond market that sees the issuance of typically smaller, more nimble transactions when compared with a traditional 144A placement.

Sherman Taylor explained that as the ILS asset class is becoming more mainstream, smaller cat bond and collateralised reinsurance deals are becoming more common place in Bermuda.

“While the December ILS renewal season was slower than expected due to loss creep and trapped capital, the BSX listed over $350M of ILS notes in late December and Early January that were issued through ‘cat bond lite’ structures. This included 9 deals issued from the Seaside Re ‘cat bond lite’ platform – more than double the number of deals issued from this platform in the December 2018 renewal period,” he said.

Looking forward, Dyer-Fagundo said that Estera remains “comfortable that ILS products will persist as a relevant asset class and will continue to engage the interest of investors. We expect that the largest and most innovative ILS products will continue to use Bermuda and to be listed on the BSX.”

The multi-industry expertise and robust regulatory infrastructure on offer in Bermuda supports its position as a leading global hub for ILS, and it’s expected that this will continue in the months and years ahead.

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