NU Online News Service, Nov. 23, 9:15 a.m. EST

The string of catastrophes that wrought so much destruction—and caused so many insurer losses—early in 2011 also spurred the formation of special purpose insurers (SPIs) in Bermuda with 17 formed this year, the largest number to date.

The majority of those formations have been created for issuing cat bonds, and generally in relation to insurance-linked securities (ILS) transactions, the Bermuda Monetary Authority (BMA) tells National Underwriter.

SPIs are fully funded insurers normally formed for a single transaction, that enables insurers to raise capital by transferring risk for major natural perils such as hurricanes or earthquakes via capital market vehicles—typically by issuing cat bonds to third parties.

Sidecars are a type of special purpose vehicle that became popular in 2005 after the roar of Hurricanes Katrina, Rita and Wilma, with 20 sidecars formed as a solution to reinsurance capacity shortfall. According to A.M. Best, those sidecars represented $4.5 billion of capacity.

The Bermuda Stock Exchange (BSX) in September announced that the value of ILS listed on the BSX has doubled in the past year, surpassing the $2 billion mark for the first time.

The Exchange has been striving to attract such ILS as catastrophe bonds to list since the Authority created the new SPI class of insurer in 2009, along with regulations conducive to formation of such entities in Bermuda.

The Embarcadero catastrophe bond took the number of listed securities on the BSX to 17 (including two classes of CatCo shares) and the listed value to $2.1 billion. The $150 million Embarcadero cat bond was approved by the California Earthquake Authority through an SPI in Bermuda, Embarcadero Reinsurance Ltd.

Sidecars formed in Bermuda in 2011:

• Sector Re IV Ltd.: HSBC Insurance Management (Bermuda) Ltd., March 23

• QX Reinsurance Co. Ltd.: HSBC Insurance Management (Bermuda) Ltd., March 28

• AlphaCat Re 2011, Ltd.: Horseshoe Management Ltd., April 29

• Aeolus Re MY11 SPI Ltd.: Aeolus Capital Management Ltd., May 11

• Accordion Reinsurance Ltd.: JLT Insurance Managers (Bermuda) Ltd., May 25

Special Reports /

2011 a Banner Year for Bermuda SPI Formations

Related Stories

Recommended For You