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Licence fees reduced for Bermuda Special Purpose insurers

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The Bermuda Monetary Authority has reduced the registration fees for Special Purpose Insurers (SPI’s) by almost 50 per cent.

Effective 1 April 2012, all new SPI’s licensed in Bermuda will pay USD6,000 for annual registration. This is a significant reduction from the current registration fee of USD11,600.

Shelby Weldon (pictured), the Authority’s Director, Insurance, Licensing & Authorisations, says: “The ability to establish SPI’s here within our insurance classification system is another option for the market to use Bermuda’s extensive alternative risk transfer expertise.”

An SPI assumes insurance or reinsurance risks and typically fully funds its exposure to such risks through debt issuance or some other financing. The repayment rights of the debt or other financing mechanisms are subordinated to the insurance or reinsurance obligations of that vehicle.

“Since SPI’s are fully funded, the Authority also applies a proportionate level of supervision to such entities, which appropriately is different from what we would apply to say, a large Class 4 commercial insurer,” says Weldon. “Therefore, this fee adjustment also recognises that distinction, since our fees are directly related to the cost of supervision, further reinforcing Bermuda’s competitive position to support SPI’s.”

Bermuda has recorded significant growth in SPI formations in the last two years. A total of 23 new SPI’s were licensed in 2011, up from eight in 2010 and one in 2009 when the Authority established the regulatory framework to accommodate SPI’s. During January and February 2012, three SPI’s had already licensed in Bermuda.

The move to reduce the fees has been well received by industry, including Bermuda-based law firm, Appleby.

Brad Adderley, Partner, Corporate & Commercial at Appleby, says: “The fee reduction epitomises the proactive approach of the Authority, which was reinforced by the very senior Bermuda contingent that attended the recent Insurance- & Risk-Linked Securities Conference held annually by the Securities Industry and Financial Markets Association (SIFMA). The BMA’s attendance at the conference reaffirms to the market place that Bermuda wants to be the preeminent player in this space.”

Greg Wojciechowski, President and CEO of the Bermuda Stock Exchange, says: “Since the coming into force of the new licensing regime for Special Purpose Insurers, the BSX has seen a significant increase in interest from the market for the creation of Bermuda based SPI’s which are used for the issuance of Insurance Linked Securities (ILS). This development has led to a record number of listed ILS issues on the BSX.”

SPI’s are often used to issue catastrophe bonds. The BSX has reported that USD3.4 billion worth of catastrophe bonds, or ILS was listed on the exchange by the end of 2011. To date, 25 ILS structures have been listed on the BSX.

Adderley continued, “Bermuda has made significant inroads into the cat bond market – the reduction of fees will help the island continue to grow this business which will have a positive impact on the Bermuda economy,” says Adderley.

Wojciechowski adds: “The announcement by the BMA to reduce registration fees for SPI structures is a significant development and underscores Bermuda’s firm commitment to provide regulatory and commercially sensible support to the global reinsurance industry. Bermuda has been a partner to the global reinsurance industry for over three decades, a healthy partnership which has resulted in the jurisdiction exhibiting a "silicon valley" effect for specialty insurance. Bermuda is a global leader in the reinsurance industry and developments such as this reduction of fees highlight Bermuda stakeholders’ resolve in providing the environment for that partnership to continue for decades to come.”

Arthur Wightman, Partner, Assurance and Business Advisory Services, Insurance/Reinsurance at PricewaterhouseCoopers, says: “Bermuda’s established funds and reinsurance marketplaces make it the optimal jurisdiction for structuring Insurance Linked Securities and other convergence structures. This move by Bermuda’s forward-looking regulator is just one example of how seriously Bermuda is committed to further developing these markets and represents another proactive move by the BMA to commercially practicable regulation. It also reinforces a commitment by the regulator to facilitate speed to market.”
 

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