Recent changes made by the Bermuda Monetary Authority (BMA) to improve processes specific for catastrophe and mortgage bonds, shows that the island is listening to its clients and being more adaptive in the face of growing competition, according to Brad Adderley, Partner at global law firm Appleby.
The BMA, the financial market regulator for Bermuda, has made a number of enhancements to its insurance-linked securities (ILS) processes, initially applicable to cat bonds and mortgage bonds with a view to expanding this to sidecars in the future.
To discuss the changes and what this means for both ILS market participants and the Bermuda marketplace, Artemis spoke with Adderley, who has been working with the BMA on this matter.
“It's basically what you would call a restricted SPI. What I mean by that is, it's an SPI licence, where you can only reinsure a cedent and its affiliate,” said Adderley.
“They will consider expanding it to other categories but they are starting off narrower. So, really, if you think about it, it will cover every cat bond that we see in the marketplace.”
Currently, to apply for approval to be registered as a special purpose insurer (SPI) in Bermuda an application is submitted by 5pm on Monday, which then has to be reviewed by the BMA on the Friday who returns with questions.
“The first change is, you're now getting to submit an application any day of the week, it makes no difference when,” said Adderley.
Adding, “The second difference is when you submit, they have given you a stricter timeline where the BMA guarantees to respond within three business days from 5pm that day.
“So, now you don't have to wait Monday to Friday; it's only three business days which is great. This change demonstrates the BMA's flexibility and ability to innovate.
“What the BMA is basically saying, is we're not regulating these companies any less, what we're doing now is focusing on what's important, because we know what we've seen over the years.”
In the past, the BMA had an SPI checklist that was maybe seven pages long, alongside the requirement of a business plan, which, over the years also became very long and time consuming.
Roughly two years ago, the BMA removed the SPI checklist from the process and just required the business plan.
“What they've basically done now is eliminated the business plan, you've got a checklist of questions, you answer those questions and you submit the responses. And those questions are more precise and go to what you should really be focusing on when you're the regulator.
“For instance, who's the cedent, whose collateral, what's the investment policy, is the collateral held in cash, are the investors sophisticated. So, very precise questions, which obviously goes to the nitty gritty of the substance of a transaction.
“So, for my purposes, what they're doing is actually being more precise, and regulating these entities better,” said Adderley.
Ultimately, not needing to produce a business plan but instead just a more precise, less time consuming SPI checklist, is expected to make the processes more efficient as there's simply less documents circulating for review.
Another notable change, explained Adderley, is that the BMA has now made this a one-step process.
As mentioned previously, historically, the initial application that is submitted is to gain approval to be registered, and not actually to be registered as an SPI. But the BMA has now made this a one-step process, where when an application is submitted it's an application to register as an SPI.
“So, now we have, less documents, more precise questions, submit any day you want, quicker turnaround, and one less step,” said Adderley.
The enhancements from the BMA to its ILS processes come as new domiciles continue to emerge, notably Singapore and more recently Hong Kong in Asia.
Discussing the introduction of new ILS jurisdictions, Adderley told Artemis that, “I think, perhaps the BMA did realise that competition is always there. So, they are looking at several things to be more competitive. They definitely realise that people have choices.
“Second, I think definitely this is the result of Singapore. When you consider how many more cat bonds have been issued in Singapore this year, those are deals that Bermuda didn't get, and that's a fair amount.”
“To me, the BMA is doing its usual market leading role, it's improving its process, regulating the companies correctly and in a prudent manner, to make the marketplace more seamless.
“What Bermuda is saying, is we're listening to our clients, we are being more adaptive, we're being a market leader, and we're going to make sure your experience in Bermuda is better,” he concluded.
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