There’s a lot of investor interest in the reinsurance space in general, with a particular focus outside of cat in the more Hedge Fund Re-type models. These trends are keeping the BMA very busy. Often these investors will want to do significant transactions, but they are not interested in the volatility that cat introduces.


Whether or not you call that ILS, it’s different capital coming into the industry, putting pressure on rates across the board. This plays to all of our strengths as an Island—the fact that we’re able to structure and put together these transactions and source the risk.


Kramer: There’s an interesting dynamic in the publicly traded reinsurance market. Those companies are paying dividends, increasing them, buying back stock, and they’re also suffering from a decline in yields in the bonds of their portfolios. So what they’re also doing is ceding part of their business to the ILS market. And assuming they do a 50/50 deal, they keep 50 percent and they cede 50 percent.


They’re reducing their capacity and making sure their leverage is so that their return on equity continues to be high. You can see the shares are trading at premium to book value as a result.


What are the challenges and opportunities associated with regulating and overseeing some of these structures?


Farrell: From a regulatory point of view, SPIs are very similar to conventional re/insurers. The pure cat bond is more straightforward because you are reviewing a transaction that is well defined at the point where capital is being raised and the documentation is usually very comprehensive. For this type of insurance transaction we spend a lot of time scrutinising the application during the pre-licensing phase.


It helps in the Bermuda market that most insurers and insurance service providers have significant experience of these structures and the regulatory requirements. We are also seeing a trend back to the formation of Class 3Bs and Class 4s, and probably with a capital base more around $500 million to $750 million, as opposed to the latter half of 2005 when we were seeing more like $1 billion to $2 billion.


30 Bermuda Finance | 2014


“There are investors with different return expectations and profiles, so there is the opportunity to perhaps structure different funds with different return expectations.” Craig Redcliffe


We are seeing a mix of new insurers being registered: from standalone, single-contract SPI entities, through to multiple contract SPIs, and a lot more captives, long-term insurers, Class 3As, 3Bs and Class 4s.


ILS is not new to Bermuda, but what has changed is the number of companies in the sector, the established insurers in the ILS sector have grown significantly over the last two or three years.


Wojciechowski: When we initially started talking, it was about a cautious pause in the market, but what we’re seeing right now at the BSX is probably the best year that we’ve ever seen. Just this year the momentum we’ve seen in the listing of these structures has been significant, with one of the largest capital transactions ever coming into the market, at $1.5 billion.


We’ve seen some new and different types of products coming in as well, very large and very small products seeking public visibility. Right now things are looking very healthy at the exchange, and we’ve now captured about 50 percent of the 250 cat bonds in issuance. This echoes Bill’s earlier comments that Bermuda has all the components to actually support the industry, and with the evolution that’s happening in the reinsurance industry in terms of capital formation, it comes as no surprise that Bermuda has all those pieces linking together.


The fund creation that is going on in Bermuda is not something that can be easily replicated. Bermuda has carved itself a niche in this space. From


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