Greg Wojciechowski provides a detailed overview of the growth and development of the Bermuda Stock Exchange in 2010.
The Bermuda Stock Exchange (BSX) ended 2010 with a record number of listed securities.
Despite the Bermuda domestic capital market continuing to experience pressure as a result of the global market dislocation, BSX international listing business and in particular the listing of Insurance Linked Securities continued to gain momentum and generate positive attention from the global capital markets for Bermuda.
Year End Overview
The total market capitalisation of the BSX as at 31 December 2010 (excluding fund listings) stood at over BM$319 billion of which approximately BM$1.4 billion represented the domestic market. Total trading volume for the period was 64 million shares with a corresponding value of BM$112 million compared to 5.7 million shares with a corresponding value of BM$50.9 million for 2009.
The RG/BSX Index closed the year at 1149.49 which is 45 per cent lower than 2009.
As at 31 December 2010, 807 issuers were listed on the BSX. Included in the new listings was the Variable Note program of Lodestone Re. This listing and others from Montana Re and Merna Reinsurance II raised the number of Insurance Linked Securities listed on the BSX to 19 with an approximate market capitalisation of BM$1.83 billion.
In addition, the Exchange listed a further 124 international derivative warrants. There were also 55 new collective investment vehicles listed and seven subsequent issues from listed issuers.
Noteworthy in 2010 was the Bank of Butterfield’s BM$550m capital raise, its subsequent successful rights offering as well as the listing of BM$500m of the Government of Bermuda’s 5.603 per cent Senior Notes and the delisting of the shares of Bermuda Container Line.
This continued activity highlights the fact that the domestic capital market works and that Bermuda based investors have an investment appetite for well structured and regulated investment opportunities. It also shows that despite challenging economic times, new listings continue to be attracted to the BSX.
Developments in 2010
In 2010, the BSX continued to enhance its data dissemination capabilities to the international financial markets by adding RSS and XML feeds for trade data reporting.
The Exchange implemented a new platform supporting the electronic submission of listed fund pricing data and more content was added to the Exchange’s website making issuers’ historical pricing more readily available.
In addition, a data feed to the IDC Group was established further expanding the BSX’s global data coverage.
There is no denying that 2010 was a challenging period for the domestic capital market. Trading volumes and values hit lows as investors reacted to financial market news and results posted by BSX listed issuers and the RG/BSX index fell by 45 per cent to one of its lowest levels since 1997. However, historically, the domestic capital market tends to lag behind developments (negative or positive) in the larger financial markets.
Encouragingly, many markets have ended 2010 in much stronger positions. Although the Bermuda economy is in the midst of a negative economic cycle, Bermuda companies continue to operate and provide their clients with the products and services which have made them successful over the years. During times of severe economic pressure, investor sentiment wanes, but those that are cautious, deliberate and prudent in their analysis may find solid long term investment opportunities.
Insurance Linked Securities
With regard to the Exchange’s international business platform it should be noted that the BSX ended the year with a record number of listed issuers. Raising Bermuda’s profile in the global financial markets for the creation, listing and capital market support services of Insurance Linked Securities has also been an objective – once which has been successfully achieve.
Bermuda has an important role to play in supporting this dynamic and growing market which saw over BM$5 billion in new structure issuances in 2010 alone. The BSX entered this market much later than its competitors and the results to date have been impressive further deepening the Exchange’s commitment to this space.
At the end of 2009, the Bermuda Monetary Authority introduced legislation that made it easier to form and list Insurance Linked Securities (ILS) on the British Dependent Territory and Bermuda has been positioning itself to attract and list ILS such as catastrophe bonds.
And as a result of this push, in July 2010, the BSX announced it had cat bond listings valued at over BM$1 billion for the first time.
A report in August 2010 by Aon Benfield said new issues of insurance cat bonds should rapidly rebound to pre-financial crisis highs as securities markets stabilise – and Bermuda is capitalising on the interest.
Investors have been showing sustained interest in cat bonds, which enable insurance companies to raise capital through the transfer of insurable risk for events such as hurricane or earthquake damage to financial market investors, while their prices have also remained attractive for sponsors of the bonds.
The BSX has listed 10 cat bonds with a combined value of BM$1.174 billion. Three of these have been listed since the end of 2009 – State Farm’s Merna Re II (BM$350 million), Flagstone Reinsurance Holdings SA’s Montana Re transaction (BM$175 million) and an issuance from Chartis, Lodestone Re, worth BM$425 million.
Since this new Bermuda push, growing numbers of institutional investors have made preliminary enquiries about setting up cat bonds on the island.
The publicity following the 2010 listings has pushed the BSX to the fore in the eyes of the Capital Markets and raised the profile of the jurisdiction and the Exchange. BSX has come a long way in a very short period of time.
The Bermuda Stock Exchange continues to work hard and closely with the insurance industry to provide additional levels of stock exchange support for these and other instruments so that the island state solidifies itself as the logical location for the convergence of the capital and insurance markets.
The next 12 months promises to be one of continued growth for the BSX. The hard work that has been done in Bermuda to create and sustain a reputable and respected commercial and regulatory environment will drive the country forward, and will help to add new lines of business and further elevate Bermuda’s position amongst the major global financial centres.
Gregory A. Wojciechowski
Greg Wojciechowski is President and Chief Executive Officer of the Bermuda Stock Exchange (BSX). He is also, the Chairman of the Financial Intelligence Agency in Bermuda, past-Chairman of ILS Bermuda Ltd. and sits on the Board of Directors of the World Federation of Exchanges (WFE) and the Bermuda Business Development Agency (BDA). Prior to assuming the role of President and CEO in January 2002, Greg Wojciechowski was the Exchange’s Chief Operating Officer. In this capacity, he was responsible for the development of the Exchange’s regulatory and operational infrastructure as well as the day to day running of the Exchange. Prior to joining the Bermuda Stock Exchange in 1993, Mr. Wojciechowski, over a period of several years, held management positions at three large U.S. brokerage firms. During this time his attention was focused on brokerage administration and operations in the global equity and fixed income capital markets. Mr. Wojciechowski was educated in the U.S. and received a Bachelor of Arts degree from the University of North Carolina at Charlotte. He has studied International Business at The University of Copenhagen under Denmark’s International Studies Program and has studied French and International Relations at the Universite D’Aix-Marseille (Institut Pour Etudiants Etrangers) in Aix-en-Provence France. In 1998 Mr. Wojciechowski attended and completed the Young Managers Programme at INSEAD in Fontainebleau, France.