Speaking to A.M. Best TV at ILS NYC 2020 in February, Brad Adderley discussed Bermuda’s new Collateralised Insurer class of ILS structure, highlighting some of the flexibilities it will offer to fund managers and investors.

While ILS funds and other providers of fully collateralised reinsurance have been writing that business using other structures such as the special purpose insurer (SPI) for years, the new classification has benefits for them.

The collateralised insurer will “provide them with better flexibility when it comes to writing that business,” Addeley explained.

Those benefits come with costs attached though, as “When you become a collateralised insurer you’re going to have to have more capital, but the capital requirements are still reasonable. We’re thinking about $200,000 being the starting point, but that will be subject to the type of business that you write,” Adderley said.

But it is the ability to expand on the type of reinsurance business underwritten, as well as to do more of it, that could attract ILS fund managers to the new collateralised insurer class.

“Under the SPI rules you could only reinsure sophisticated parties, who normally were rated A- or better,” Adderley said.

“Now, under a collateralised insurer, you can technically reinsure anyone.”

It’s also a more flexible vehicle for offering a greater range of terms and conditions to cedents, Adderley further explained.

Saying that, “Under an SPI you couldn’t do clawbacks, but now you can do clawbacks in a collateralised insurer.”

He summarised, “If your business is plain vanilla and simple, you’re only going to do one or two transactions, maybe just use an SPI.

“If you’re going to do multiple transactions for multiple cedents and you don’t want to be a Solvency II equivalent classification, like a Class 3A, then be a Collateralised Insurer. You fit right in between classifications and the BMA is taking exactly the right approach.”

He further explained, “The Bermuda Monetary Authority (BMA) has again been market leaders, by coming up with this new classification.

“A lot of SPI’s became a bit like commercial carriers. So what they’ve come up with now is a new classification which is going to provide better regulation for that type of commercial reinsurer, who’s running collateralised business.”

With many choosing rated vehicles as the next step in their ILS infrastructure evolution, fund managers shouldn’t think the collateralised insurer counts that out.

“It won’t be a classic rated company. But you could get a rating,” Adderley said.

Adding, “We will see more collateralised vehicles, either SPI’s, potentially Collateralised Insurers (the new classification) and Class 3A’s getting ratings.”

Share
Twitter LinkedIn Email Save as PDF
More Publications
25 Jun 2020 |

ILS needs a buoyant secondary market to thrive – but electronic platforms must come first

A secondary market for ILS can only emerge once the broader market fully embraces electronic platfor...

24 Jun 2020 |

Health and Wellness – Employers Duties

With the current state of COVID-19, many employees are in the midst of now returning to work and oth...

4 Jun 2020 |

Choices of law, jurisdiction must be clear

Ideally, a contract will contain both a “choice of jurisdiction” and a “choice of law” claus...

26 May 2020 |

Technology & Innovation Update Q2 2020

Technological developments have been accelerating at an unprecedented pace in Asia - the first regio...

22 May 2020 |

Reopening workplaces: employment issues

As Bermuda takes the first tentative steps in its phased reopening plan, we review some of the key p...

20 May 2020 |

Threatened insolvency: Personal Exposure of Directors

During the challenging economic environment created by the COVID-19 pandemic, business resilience an...

Contributors: Jerome Wilson
12 May 2020 |

Pandemic-induced market dynamics could result in Class of 2020

Current insurance and reinsurance market dynamics suggest that it could be an opportune time for sta...

7 May 2020 |

Electronic signing of documents and COVID-19

The COVID-19 outbreak has transformed the way we operate in all aspects of life, including and espec...

29 Apr 2020 |

Why the development of a secondary market will transform ILS

The ILS market has become an increasingly important feature in the risk transfer landscape in recent...

23 Apr 2020 |

Duties and Liabilities of Directors of Bermuda companies

During the challenging economic environment created by the COVID-19 pandemic, directors need to be e...

Contributors: Jerome Wilson