Greg Wojciechowski examines how Bermuda has emerged as the centre for excellence for ILS structures.
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Bermuda has emerged as a centre of excellence for ILS structures. The jurisdiction has developed a reputation for innovation, as well as bringing products that meet and exceed the needs of global clientele quickly to market. In addition, Bermuda is able to support the ILS market with its depth of experience and a robust, built-for-purpose regulatory framework. These strengths allow Bermuda to support all areas of ILS, including cat bonds, as well as ILWs, collateralised reinsurance and side cars.
Innovation is at the core of Bermuda's success largely due to necessity. Whether in rigging design for sailing vessels, as is the case with the Bermuda Sloop or product design to meet the commercial needs of our global clientele, Bermuda has shown time and time again that its innovativeness is relevant and does impact the spaces or industries in which we participate. Reinsurance and, more recently, alternative risk transfer and insurance linked securities are other examples of the Bermuda market, using its collective expertise and experience to not only respond to a trend in the market, but to excel in creating a conducive environment for this industry segment to develop and grow.
Providing for the market
With regard to its capacity to service the ILS market, Bermuda has a far greater concentration of talent than any market, except New York and London. Over 20 reinsurers and insurers have major presences that directly employ more than 1,600 people on the island and nearly 35,000 globally - including more than 16,000 employees in the US and more than 8,600 in Europe. Dozens of other companies have offices of varying sizes, employing yet more professionals.
Moreover, Bermuda also has high-quality service providers in administration, banking, brokerage, law, tax, actuarial, trust and governance. The government recently overhauled immigration regulations to enable start-ups to bring talent to Bermuda more easily, although recent start-ups have reported finding a robust market for local talent.
The regulatory environment in Bermuda has been favourable for the growth of the ILS market and it is likely that it will continue to be so for the market's continued development. Solvency II and other regulatory developments are a contributory factor in the growth of ILS and cat bonds. Cat bonds and other ILS instruments offer fully collateralised cover and benefits cedants due to a removal of counterparty and credit risk. They also assure efficient access to capital during insured events. Investor demand has been robust for this non-correlating asset class.
The Bermuda Stock Exchange
The Bermuda Stock Exchange (BSX) is a recognised stock exchange that is focussed on the continued acceleration of a converged market. BSX's ILS growth is a significant achievement, accomplished through the hard work and commitment of many in and outside of Bermuda who have worked to ensure the Bermuda platform meets and exceeds the expectations of both market and client.
The future of ILS is promising and Bermuda is a natural home for this unique risk and investment solution. Bermuda possesses the ideal mix of talent, sophisticated infra-structure and respected regulation to allow ILS to thrive.
By leveraging the exchange's longevity in the global capital markets and its robust technical and operational platform, we hope to be in a position to provide additional stock exchange services to the growing alternative risk transfer and ILS market, as capital allocation to the sector continues and develops additional technological needs.
While other jurisdictions are talking about being a global player, Bermuda has proven its ability to be a market leader. There are several smaller jurisdictions in Europe, such as Malta, Guernsey, the Channel Islands, as well as much bigger hubs like Ireland and London, which are developing their position in the ILS space. However, they will face problems such as a lack of reinsurance infrastructure, the need to establish an appropriate regulatory framework and putting effective tax systems in place. These are all things that Bermuda does very well.
There are currently 145 listed ILS vehicles registered in Bermuda, with an aggregate value (market cap) of $18.3bn. Bermuda is known globally as the "World's Risk Capital" and is now a centre of excellence for the creation, support and listing of ILS vehicles, which adds to the already solid platform that Bermuda offers the market. Bermuda has therefore become the jurisdiction of choice for setting up, listing and servicing ILS structures.
About the Author
Greg Wojciechowski Greg Wojciechowski is the President & Chief Executive Officer at the Bermuda Stock Exchange. He also serves as the Chairman of the Financial Intelligence Agency in Bermuda. Prior to joining the Bermuda Stock Exchange in 1993, he held management positions at three large US brokerage firms.