Bermuda to take on Cayman in cat bond dominance
With last year’s shares on the Bermuda Stock Exchange (BSX) down 40 percent from the year before, the Island—known primarily for its insurance and reinsurance business—is seeking a way to bounce back.
Following the introduction last October of the Insurance Amendment Act, Bermuda is now able to go head to head with the Cayman Islands to claim the dominant position within the insurance linked securities (ILS) market, of which cat bonds form a staple.
Andre Perez, chief executive officer of the Bermuda-based Horseshoe Group, said: “While we realise that the Cayman Islands has been the leader on cat bonds, we are confident that Bermuda now provides a viable alternative.”
The act, which allows specific risk-based regulations for the establishment of special purpose insurers (SPIs) as a new class of insurer, will recognise and facilitate the structure of insurance-linked securities.
Perez continued: “Since Hurricane Andrew, Bermuda has emerged as the foremost property/catastrophe reinsurance market in the world, and this new SPI regulation is a step towards consolidating this lead by making it easier for cat bonds to be managed out of Bermuda.”
Others also remain positive and predict that 2010 will be a better year for the Island. Greg Wojciechowski, BSX president and chief executive officer, describes the change as an “exciting development for Bermuda”.
He added: “I have every confidence that the hard work that has been done in Bermuda to create a commercial and regulatory environment that supports innovative business transactions and solutions will be rewarded by the markets through an increased flow of new business to the jurisdiction.”
The act was approved in part to attract international investors to Bermuda after a difficult year on the markets. The Royal Gazette/BSX Index ended 2009 at 2072.41, 39.95 percent lower than in 2008, according to the exchange.
The BSX total market capitalisation as of December 31, 2009 (excluding fund listings) stood at over $225 billion and total trading volume for the period was 5.7 million shares. The value of shares traded was cut in half year over year—$50.9 million in 2009 compared with $101.5 million for 2008.
Shelby Weldon, director of insurance, licensing and authorisations at the Bermuda Monetary Authority, affirmed the introduction of the act by saying: “Many of the sponsors and purchasers of catastrophe bonds already have a presence in Bermuda. As a result, the establishment of SPIs in Bermuda to offer such products makes perfect business sense and could lead to cost efficiencies for both sponsor and purchaser.”
