Special Purpose Insurers (SPIs) have become the fastest growing
type of Bermuda market insurer as demand for catastrophe bonds
soars. And Bermuda has quickly seized 20 percent of the global
catastrophe bond market. Amid increasing demand, that share appears
set to grow.
Leslie Robinson, Assistant Director, Insurance Licensing and
Authorisation, at financial regulator the Bermuda Monetary
Authority (BMA), revealed that the Island is on track to add even
more SPIs this year than the 23 it licensed in 2011.
Speaking at a session entitled 'SPIs – An Emerging
Opportunity', Ms Robinson told delegates that the Authority had
licensed 10 new SPIs so far this year. Five of them were formed in
May as sponsoring reinsurers built up capacity for the hurricane
season.
The SPI classification was introduced in Bermuda in 2010 and
provides a sound legal and regulatory framework for vehicles used
for collateralized reinsurance products, including cat bonds,
industry loss warranties and sidecars.
SPIs are required to meet several key criteria, allowing the BMA
to regulate them less stringently than other insurance entities,
the first of which is that they are fully collateralized, meaning
that for every dollar of risk, there is a dollar of capital. Other
requirements include that their investors are sophisticated, that
the SPI's purpose is specific, that there is limited recourse,
and that it meets the Authority's standards for transparency
and disclosure.
She added that the BMA had almost halved SPI fees from $11,600
to $6,000 last year, to sharpen the Island's competitiveness in
the ILS market.
Fellow panelist Sean McCarty, Managing Director of Aon Benfield
Investment Banking, outlined the size of the cat bond market,
estimating that there have been $43 billion in placements since
1996 and more than $15 billion worth were active. Bermuda had a 20
percent share of the cat bond market and "most, if not
all" of the sidecar issuances, he added. Jason Carne, Partner,
Insurance, KPMG Bermuda, said prior to the enactment of the SPI
legislation, the business went elsewhere, but Bermuda now has the
edge.
He said Bermuda has unmatched insurance expertise, including
auditors and attorneys knowledgeable in the industry. "Bermuda
has the deepest infrastructure," Mr. Carne said. "When
things don't go according to plan, then you need expertise in
place to deal with it."
Brad Adderley, Partner at international law firm Appleby, also
opined that Bermuda was now a superior cat bond jurisdiction to
those where deals were taking "months" to go through.
"In Bermuda, the process is smooth and quick," Mr.
Adderley said. "Speed to market is very important."
Although it might be difficult to win business from sponsors who
traditionally placed cat bonds elsewhere, Mr. Adderley felt Bermuda
also had the edge because of the Island's reinsurance market
and related expertise.
Originally published in Bermuda Insurance Update, July
2012
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Specific Questions relating to this article should be addressed directly to the author.
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