Fees for special-purpose insurers halved by BMA

By added on 27/03/2012

Registration fees to set up Special Purpose Insurers (SPIs) in Bermuda have been almost halved, the Bermuda Monetary Authority announced, reports the Royal Gazette.

Effective April 1, 2012, all new SPI’s licensed in Bermuda will pay US$6,000 for annual registration, compared to the current registration fee of US$11,600.

The move has been seen as a boost to Bermuda’s competitiveness in the global insurance-linked securities (ILS) market, which has flourished on the Island over the past two years.

SPIs are often used as vehicles for ILS, such as catastrophe bonds and industry loss warranties. Since the new classification of SPI was introduced by the BMA in late 2009, the value of ILS listed on the Bermuda Stock Exchange has gone from zero to US$3.5 billion.

An SPI assumes insurance or reinsurance risks and typically fully funds its exposure to such risks through debt issuance or some other financing.

Shelby Weldon, the Authority’s director, insurance, licensing and authorisations, explained the rationale behind the slashing of the fees.

“Since SPI’s are fully funded, the Authority also applies a proportionate level of supervision to such entities, which appropriately is different from what we would apply to say, a large Class 4 commercial insurer,” Mr Weldon said. “Therefore, this fee adjustment also recognises that distinction, since our fees are directly related to the cost of supervision, further reinforcing Bermuda’s competitive position to support SPI’s.”

A total of 23 new SPIs were licensed in 2011, up from eight in 2010 and one in 2009 when the Authority established the regulatory framework to accommodate SPI’s. During January and February 2012, three SPIs had already licensed in Bermuda.

Cayman has traditionally been the domicile of choice for catastrophe bonds. By last month the Cayman Stock Exchange announced it had issued cat bonds with a face value of $8.5 billion.

But the flow of offshore ILS business is no longer one-way, with Bermuda claiming a large share of new business. Proponents of Bermuda say it makes sense to list and domicile cat bond vehicles in a globally significant reinsurance centre.

The move to reduce the fees has been well received by industry, including Bermuda-based law firm, Appleby.

“Bermuda has made significant inroads into the cat bond market. The reduction of fees will help the Island continue to grow this business which will have a positive impact on the Bermuda economy,” Brad Adderley, partner, corporate and commercial at Appleby, said.

BSX CEO Greg Wojciechowski said: “Since the coming into force of the new licensing regime for SPIs, the BSX has seen a significant increase in interest from the market for the creation of Bermuda-based SPIs which are used for the issuance of ILS.

“This development has led to a record number of listed ILS issues on the BSX.”

The BSX CEO described the fee cut as “a significant development”.

“Bermuda has been a partner to the global reinsurance industry for over three decades, a healthy partnership which has resulted in the jurisdiction exhibiting a ‘silicon valley’ effect for specialty insurance,” he said.

Arthur Wightman, partner, Assurance and Business Advisory Services, Insurance/Reinsurance at PricewaterhouseCoopers said: “Bermuda’s established funds and reinsurance marketplaces make it the optimal jurisdiction for structuring ILS and other convergence structures.

“This move by Bermuda’s forward-looking regulator is just one example of how seriously Bermuda is committed to further developing these markets and represents another proactive move by the BMA to commercially practicable regulation.

“It also reinforces a commitment by the regulator to facilitate speed to market.”