27 November 2013 News

Bermuda outpaces Cayman in ILS

Bermuda has outpaced Cayman in the ILS space for the first time in 2013, by both the value of ILS issuance and the number of bonds issued, according to a new report released by the BMA.

According to the BMA’s Bermuda Insurance-Linked Securities Market Report, Bermuda accounted for more than 62 percent of the $1.7 billion of global issuance during the third quarter of 2013, accounting for seven of the ten deals issued during the three month period. ILS deals outstanding on the Bermuda Stock Exchange made up 40 percent of global issuance, with $8 billion of the $19.5 billion of total global capacity having been sponsored by Bermuda-based special purpose insurers (SPIs).

Since the introduction of its SPI legislation in 2009, Bermuda has been gaining ground on Cayman and the Island surpassed its rival for the first time in ILS issuance this year. From a standing start of no deals issued back in 2009 when the SPI legislation was introduced, to 19 deals issued in 2013 – surpassing Cayman’s 8 deals that year – Bermuda has firmly established itself at the forefront of global ILS.

The report found that deals in Bermuda tend to be conservative in trigger type, with indemnity and industry loss index structures predominating, while North American risk constitutes 74 percent of transactions, which lean heavily towards catastrophe risk.

The report found that Bermuda is also an important market for ILS transactions, accounting for 13 percent of the global investor base, with Europe 44 percent and the US 36 percent. Addressing investor type, the report found that 71 percent are dedicated ILS funds, 20 percent money manager, 6 percent reinsurer, 2 percent hedge fund and 1 percent insurer.

The report stated that despite signals from the US that the interest rate environment would develop in the medium-term, pricing continues to remain attractive, with investor interest remaining buoyant. Cat bond returns continued to remain favourable, particularly in the face of a troubled investment environment.

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