Bermuda – Still the Domicile of choice for ILS

Hamilton, Bermuda: 29 January, 2015 — Bermuda has been the domicile of choice for 57% of Insurance Linked Securities (ILS) during 2014 and the island is committed to retaining its top position for the creation, listing and servicing of the vehicles in 2015.

Bermuda was an early leader in embracing and supporting the ILS asset class by creating the right environment for the vehicles to thrive - and from a standing start in 2009 has grown to be the leading global domicile for ILS with nearly $16 billion listed on the Bermuda Stock Exchange (BSX) at the end of 2014.

Competition is developing as other jurisdictions realise that Bermuda has had such a head start with its existing infrastructure, expertise and experience. Bermuda must continue to innovate to remain ahead of the curve and retain its position as the premier ILS domicile in the world, according to BSX President and Chief Executive Officer Greg Wojciechowski.

With the value of ILS reaching record levels in 2014, Mr Wojciechowski said a number of other jurisdictions are trying to win more market share. Bermuda is facing strong competition from newcomers such as Malta, Gibraltar and Puerto Rico who are targeting ILS, as well as from the more established players such as the Cayman Islands, Guernsey and Dublin.

Mr Wojciechowski said that the record level of ILS listings on the BSX in 2014 underscored the island’s position as the premier jurisdiction in the world for the setup, listing and support of ILS structures.

The Bermuda Stock Exchange (BSX) has broken record after record for ILS listings, with the exchange reaching more than $15 billion in listed securities for the first time at the end of 2014.

In a banner year for the ILS sector, the BSX saw a 53% increase in its ILS listings from 77 in 2013 to 118 in 2014, further cementing its position as the jurisdiction of choice for the setting up, listing and support of ILS structures. Meanwhile, the value of these securities grew to $15.91 billion from $9.71 billion from the same period last year.

“Bermuda has proven time and again to be an innovative environment that encourages the growth of all forms of ILS – from catastrophe bonds to sidecars and collateralized reinsurance vehicles,” said Mr. Wojciechowski. “Bermuda has nimbly responded to changes in the industry to offer its global clientele modern and efficient solutions for their commercial needs.”

“The jurisdiction has positioned itself at the forefront of the global development of the ILS asset class and the outstanding amount of ILS issued in Bermuda represents 57% of the worldwide stock of ILS,” he added.

In October 2009, the Bermuda Monetary Authority amended existing insurance legislation and brought in new standards for insurers, making the setup of special purpose vehicles a more straight forward process.

“The regulatory framework and the operational infrastructure in Bermuda offers institutional investors a level of comfort that no other jurisdiction can provide. The Island’s deep experience and longevity in supporting the ILS sector has contributed to Bermuda becoming a centre of excellence and the jurisdiction of choice for the ILS market,” said Brad Adderley, Partner at Appleby (Bermuda) Ltd.

In addition, Bermuda has developed ancillary businesses and specialised service providers that can further support the growth of the ILS asset class – such as accountants, attorneys, fund structures and investors. This is further fortified by respected regulators in the Bermuda Monetary Authority and the BSX.

“This cottage industry has been cultivated from Bermuda’s experience in the reinsurance industry that has evolved to support the ILS sector,” added Mr. Wojciechowski. “This existing foundation makes Bermuda the intuitive place to list ILS structures.”

According to Aon Benfield Securities, $8.03 billion of property catastrophe bonds were issued in 2014 – the highest ever figure in the history of the sector. In addition, there has been a record amount of collateralized reinsurance capacity put to work - reaching $36.2 billion at 30 June 2014, which was up approximately 23% from the $29.4 billion seen a year earlier.

As at 31 December, 2014, there was a total of 762 securities listed on the BSX. Included in the new listings in 2014 were several additional variable rate notes and programmes from Alamo Re, Azora Re, Citrus Re, Gator Re, Golden State Re II, Kilimanjaro Re, Kizuna Re II and URSA Re.

“Maintaining liquidity in the ILS sector is hugely important to sustaining this growth, and in this regard the BSX has since 2009 been very helpful,” said Paul Schultz, the Chief Executive Officer of Aon Benfield Securities. “The listing of catastrophe bonds on the BSX has become an efficient, well regulated process, and the exchange has proved itself in being able to house the expertise necessary to satisfy the demands both of our clients and ILS investors.”

Following two successful events in 2013 and 2014, the island will host the third ILS Bermuda Convergence in 2015. The event is a unique networking event, which will bring leaders together from the alternative reinsurance, convergence and the ILS marketplace. Supported by the most respected organisations in the ILS sector, this two-day event will attract investors and industry participants to Bermuda.

BOX OUTS

What the Aon Benfield ILS report said:

Aon Benfield Securities, the investment banking division of global reinsurance intermediary and capital advisor Aon Benfield, announced a new record for annual ILS issuance has been set, beating the previous record for annual property catastrophe bond issuance that was set in 2007 when $7.86 billion of property catastrophe bonds were brought to market.

The total property catastrophe bond issuance for 2014 stood at $8.03 billion. In addition, almost $500 million was recorded in new issuance through private ILS structures.

Aside from the record annual issuance, 2014 has witnessed several further records being established in the ILS sector, including a record second quarter issuance total of $4.5 billion across 12 catastrophe bond transactions, a record first half issuance total of $5.9 billion, and a record value of catastrophe bonds on-risk – which stood at $22.7 billion as of November 30, 2014.

The year also saw a new record established across other forms of collateralized reinsurance capital. As of 30 June, 2014, collateralized reinsurance capacity excluding catastrophe bonds had reached a record $36.2 billion, compared to $29.4 billion in 2013 and just $7.7 billion in 2009.

Paul Schultz, Chief Executive Officer of Aon Benfield Securities, said that 2014 has been characterized by “more than just largesse, as we have taken positive steps to expand the scope of the ILS offering by structuring innovative deals to address new perils, new territories, and new currencies, as well as making ILS solutions more accessible to smaller firms and those companies wanting to structure smaller transactions”.

“Our outlook for the ILS sector for 2015 remains highly positive, and we anticipate that the capital inflows and strong pipeline of opportunities seen in 2014 to continue.”

For a full version of the report, see http://thoughtleadership.aonbenfield.com/sitepages/display.aspx?tl=462

About the BSX:

The BSX was founded in 1971 and is the world’s leading fully electronic offshore securities market. The BSX list equities, mutual funds and bonds, depository receipts and derivative warrant securities. The BSX is a full member of the World Federation of Exchanges (WFE) and an affiliate member of IOSCO. In addition, the BSX is recognised by the U.S. Securities & Exchange Commission (SEC) as a Designated Offshore Securities Market under Regulation S; The Financial Services Authority in the UK as a Designated Investment Exchange; HM Revenue & Customs in the UK as a Recognised Stock Exchange; The Bermuda Monetary Authority as a Recognised Investment Exchange and as an Approved Stock Exchange under Australia’s Foreign Investment Funds (FIF) taxation rules.    

For more information please contact:

Sarah Mortimer

Rein4ce

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