BSX: Over $1 Billion In Cat Bonds Listings
The Bermuda Stock Exchange has seen a record number of cat bonds list on the exchange in 2010 taking the value of Insurance Linked Securities (ILS) listed to over $1 billion for the first time, according to its President and Chief Executive Officer, Greg Wojciechowski.
The Exchange, which has recently benefited from new insurance regulations brought in by the Bermuda Monetary Authority that make it easier to form and list ILS such as cat bonds, is also expecting more companies to turn to the BSX to list their cat bonds later in the year.
So far, the BSX has 10 cat bonds listed with a combined value of $1.174 billion. Three of these have been listed since the end of 2009 – State Farm’s Merna Re II ($350 million), Flagstone Reinsurance Holdings SA’s Montana Re transaction ($175 million) and an issuance from Chartis, Lodestone Re, worth $425 million.
“We would like Bermuda to become the platform of choice for listing of cat bonds,” said Mr. Wojciechowski. “It makes sense, the sponsors are here, the special purpose insurers are set up here and the Exchange is here.”
And Wojciechowski said that the publicity following this year’s listings had pushed the BSX forward in the eyes of the Capital Markets and raised the profile of the jurisdiction and the Exchange.
Strong demand from investors and sponsor has led to $2.4 billion of new capacity issuance globally so far in 2010, and nearly a third of this capacity listed on the BSX through Mena Re II and Lodestone Re.
Brenton Slade, Chief Marketing Officer at Flagstone Re, which listed Montana Re on the BSX in December 2009, said: “We were delighted to list Montana Re on the BSX. Listing can attract more institutional investors into this market, and we found the process of listing both simple and easy.”
“The BSX is a fully electronic and internationally recognized stock exchange and we operate as an equity and fixed income market,” said Wojciechowski. “This is an asset class that has very little correlation with broader capital market risks and we would be remiss not to support it.”
Andre Perez, chief executive of the Horseshoe Group, an independent insurance management services company with operations in Cayman and Bermuda, said he was pleased to see the BSX list more cat bonds. Perez said: “It is an exciting development and can offer institutional investors a level of comfort in knowing that the cat bond is listed on a reputable exchange.”
Bermuda is the world’s third largest reinsurance market and is already home to 1400 insurance companies with total assets of $442 billion, and many of its reinsurance companies have issued cat bonds or set up special purpose vehicles such as sidecars.
The international upsurge in interest in ILS, which includes catastrophe bonds and side cars, comes as institutional investors emerge from the market turmoil looking for non-correlated investments. The collapse of Lehman Brothers had an impact on the collateral structures of four catastrophe bonds. Collateral structures provide additional security for bonds.
Investors are now looking for open and transparent structures and Wojciechowski says that listing on an exchange can provide this security in this asset class. It could also lead to new institutional investors, such as pensions, investing in cat bonds.
Bermuda is well placed to take advantage of this upsurge in interest. Not only is it the third largest reinsurance market in the work, but in addition the Bermuda Monetary Authority approved the changes that resulted in the Insurance Amendment Act 2008, which came into effect in October 2009. This provides specific risk-based regulations for the establishment of special-purpose insurers (SPIs) as a new class of insurer in Bermuda’s insurance class system. It also recognizes and facilitates the structure of ILS, such as cat bonds, and a listing of these securities on an internationally recognized stock exchange makes these securities significantly more attractive for potential investors.
The BSX was founded in 1971 and is the world’s leading fully electronic offshore securities market. The BSX list equities, mutual funds and bonds, depository receipts and derivative warrant securities. The BSX is a full member of the World Federation of Exchanges (WFE) and an affiliate member of IOSCO. In addition, the BSX is recognized by the U.S. Securities & Exchange Commission (SEC) as a Designated Offshore Securities Market under Regulation S; The Financial Services Authority in the UK as a Designated Investment Exchange; HM Revenue & Customs in the UK as a Recognized Stock Exchange; The Bermuda Monetary Authority as a Recognised Investment Exchange and as an Approved Stock Exchange under Australia’s Foreign Investment Funds (FIF) taxation rules.
