Bermuda is seeking to become a leading centre for catastrophe bonds and other specialist insurance investment following the launch of the Bermuda Monetary Authority's (BMA) latest publication on the supervision of Special Purpose Insurers (SPIs).

The BMA yesterday published guidance note #20 SPIs and an information bulletin, which helps participants with the development of such insurance vehicles on the Island.

SPIs allow investors to make direct investments in insurance risks alongside underwriting companies for limited terms when they believe premium rates are particularly favourable, usually after a large disaster when insurers have the least capital, while cat bonds are used by insurance companies to offload the risk of very extreme events where their losses would be particularly large.

The other common SPI vehicles are sidecars, which allow insurers to increase the volume of business they write without asking shareholders for more capital.

Matthew Elderfield, CEO of the BMA, said: "The Authority is committed to innovation in the Bermuda market, while at the same time ensuring that businesses operate prudently within high standards. The introduction of our SPI framework is a demonstration of this commitment, as well as the jurisdiction's ability to respond effectively to new developments in the marketplace."

Gina Smith, assistant director, of actuarial services and project leader of the SPI regime development, said: "The Guidance Note outlines the Authority's approach to the supervision of SPIs, which involves setting out prudent, robust fundamental requirements and vetting that SPIs must meet in order to be licensed under Bermuda law.

"Once licensed, the ongoing supervisory attention is placed upon the original cedant/insured, which is in line with the Authority's risk-based approach to supervision."

The Information Bulletin comprises a series of documents and appendices which together provide a comprehensive overview of the BMA's licensing and ongoing supervisory activities for SPIs.

The Authority developed these documents after extensive consultation with industry and working along side an SPI Advisory Group.

The guidance note and the information bulletin are available in the document centre (policy and guidance/insurance) on the BMA's website at www.bma.bm