Bermuda catastrophe bond listings pass $5 billion

LONDON Fri Dec 7, 2012 11:36am EST

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LONDON Dec 7 (Reuters) - The volume of catastrophe bonds and other insurance-linked securities listed on the Bermuda Stock Exchange has passed the $5 billion mark for the first time after a bumper 2012, the BSX said on Friday.

Some $1.6 billion of insurance-linked securities (ILS) have been listed on BSX so far this year, the exchange's chief executive said, taking the overall listing volume to $5.3 billion from $3.7 billion at the start of the year.

"Bermuda is creating a 'cottage industry' for ILS," BSX president and chief executive Greg Wojciechowski told Reuters, referring to businesses set up in Bermuda specifically to create, administer and execute ILS products, such as cat bonds.

ILS sales have grow rapidly this year as investors search out assets that are insulated from mainstream financial and economic shocks.

The most common form of ILS are catastrophe bonds, which offer investors a high yield in return for their promising to cover some of the issuing insurer's losses from claims should a specified natural catastrophe occur.

The BSX has been listing ILS since 2009, when the local regulator introduced rules allowing the establishment of "special purpose insurers," vehicles used to sell catastrophe bonds on behalf of the ultimate issuer.

The exchange currently hosts 40 listed structures, with a market capitalisation of $5.3 billion, Wojciechowski said, including Blue Capital Global Reinsurance Fund, an ILS fund recently set up by Bermudan reinsurer Montpelier Re.

Prices in the sector have been rising after a series of costly natural disasters, including October's superstorm Sandy, which are expected to push up reinsurance prices when policies are renewed next year. That is likely to spur further issuance in the sector, which effectively offers insurers another source of reinsurance for peak risks when prices are high.

The publicly traded catastrophe bond market has a capitalisation of about $16 billion.

Bermuda is one of the world's leading insurance hubs, rivalling London and Zurich, with many insurers and reinsurers choosing the island as their home base because of its friendly tax and regulatory regime.

New cat bond issuance picked up strongly worldwide in the final three months of 2011 after a mid-year lull, with many new issues being increased well beyond their target size due to pent-up investor demand.

Total issuance to date stands at $5.6 billion, close to the $6 billion forecast for the whole year by reinsurers, brokers and ILS funds.

- To join the Thomson Reuters Insurance Linked Securities Community for more news and analysis, click here) (Editing by Catherine Evans)

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