Bermuda Stock Exchange: Breaking ILS records

The Bermuda Stock Exchange broke records in 2011 for insurance-linked securities listings

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At the end of 2011, the Bermuda Stock Exchange (BSX) for the first time reached over $3bn in listed catastrophe bond and insurance-linked securities (ILS) on the exchange. As of 31st December 2011, the BSX reports that 25 ILS are listed on the exchange with a total value of $3.373bn. The BSX has been working hard to promote itself as the go-to listing destination for ILS and cat bonds and, thanks to legislative changes made by the Bermuda Monetary Authority (BMA) to make the island a more attractive domicile for these securities, the efforts seem to be working.

“We are absolutely delighted with how 2011 has been for the BSX,” said Greg Wojciechowski, President and CEO of the BSX. “We set out in 2010 to firstly raise the profile of Bermuda and the exchange, and secondly to attract more ILS to the island and to list on the exchange. We feel we have achieved a great deal in the last two years.”

Of the 25 listed insurance-linked securities on the BSX, four are securitisation programmes, 13 are notes issued under these programmes, six are tranches of ILS notes issued as stand-alone securities and two are specialist exchange trade fund classes.

“All of this activity has happened in the space of about two years,” said Mr. Wojciechowski. “The momentum is driven largely by the BMA’s revised regulations, which in late 2009 established a new designation for ‘special-purpose insurers’ (SPI) as part of its supervisory scheme. This has been a very positive step for SPIs setting up in Bermuda wanting to issue ILS such as catastrophe bonds, and we have been able to offer them the option of listing these ILS on the exchange.”

According to the Bermuda Monetary Authority, 23 special-purpose insurers were formed in Bermuda during 2011, with the majority of these formations created specifically to issue catastrophe bonds or create sidecars. In 2010, just 10 were formed during the same period, so clearly the push to attract this business to the island is working.

Mr Wojciechowski added: “At the exchange we are looking to support the further development of this growing asset class using the experience and infrastructure we have deployed successfully for other investment vehicles. Institutional investors such as pension and dedicated funds are particularly interested in ILS due to the low correlation between ILS and broader capital markets. ILS are a natural hedge to capital markets and a listing on an internationally recognised exchange gives investors a greater degree of security in the vehicles due to transparency afforded by exchange regulations.”

BSX profile
Established in 1971, the Bermuda Stock Exchange is now the world’s leading fully electronic offshore securities market, with a current market capitalisation (excluding mutual funds) in excess of $300bn.

There are over 625 securities listed on the BSX, of which over 350 are offshore funds and alternative investment structures. Trading occurs daily on a rolling T+3 basis using BEST, the BSX’s Central Limit Order Book trading mechanism which is tightly integrated with the Exchange’s clearing, settlement and depository platforms.

The success of the BSX lies in its innovative approach to new products and markets and its ability to offer a ‘commercially sensible’ regulatory environment. The Exchange specialises in the listing and trading of capital market instruments such as equities, debt issues, funds (including hedge fund structures), derivative warrant programmes and insurance-linked securities, such as catastrophe bonds.

The BSX, recognised by the US SEC as a Designated Offshore Securities Market, is a full member of the World Federation of Exchanges (WFE) and is located in an OECD member nation.

The BSX was granted Approved Stock Exchange status under Australia’s Foreign Investment Fund (FIF) taxation rules, Designated Investment Exchange status by the UK’s Financial Services Authority, Recognised Stock Exchange by the UK HMRC and Designated Stock Exchange status under Canada’s Income Tax Act. The BSX is also a member of America’s Central Securities Depository Association.

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