Bermuda remains ILS world leader
Bermuda continues to be the world leader in the insurance-linked securities market — but new issuance of ILS fell for a second successive year in 2016.
The Bermuda ILS Market Report, published quarterly by the Bermuda Monetary Authority, showed that the total outstanding global ILS at the end of 2016 was $26.9 billion — a rise of 2.4 per cent from the end of 2015.
Of that total, $19.2 billion was issued from Bermuda, giving the island a dominant world market share of more than 71 per cent.
ILS include catastrophe bonds, which cover specified risks such as a Florida hurricane and which involve investors putting their capital at risk as they pursue attractive returns. The lack of correlation with financial markets has been one of the biggest selling points for ILS investors.
Up until 2012, most ILS were issued from the Cayman Islands. Bermuda created a regulatory framework for special purpose insurers to issue ILS in 2010, and since then 174 SPIs have been registered on the island and have issued 149 ILS.
Nearly three-quarters of global ILS market capitalisation, or some $20.1 billion, is listed on the Bermuda Stock Exchange. This includes around $1.5 billion of issuance by foreign entities, specifically from Ireland and the US.
According to the BMA report, global issuance of ILS fell 10.9 per cent last year to $7 billion, of which $5.1 billion was issued from Bermuda. The island's closest competitor was Cayman, which issued $1.2 billion.
In the fourth quarter, the report said six new ILS bonds totalling $2.1 billion were issued, up more than one third on the same period last year.
A report published last July by the Bermuda Business Development Agency found that the ILS sector created 400 jobs in Bermuda in 2015 and was responsible for $100 million in payroll.
Bermuda's success has not gone unnoticed in Britain, which has announced its intention to attract a slice of the business to London and intends to create a framework to compete with the island.
The rush of capital into the ILS sector over the past seven years has added to the competitive pressures on traditional reinsurers, particularly in property and catastrophe lines. The report shows that nearly two-thirds of all ILS cover North American perils.
Despite the rapid growth of the ILS market in recent years, it represents only 4.5 per cent of global reinsurer capital, estimated by reinsurance broker Aon Benfield to be $595 billion.