THE WORLD’S RISK CAPITAL LEADS THE WAY OUT OF 2020
Future generations will examine history in the context of pre and post-COVID-19 but Bermuda has the potential to lead the way in helping the world recover, says Greg Wojciechowski, president and chief executive officer of the Bermuda Stock Exchange.
“Bermuda will certainly play an important role in a rapidly changing world—especially in the global transfer of risk.”
2020 has marked an epoch. A generation will regard history as pre and post-COVID-19. Not only has a global pandemic upended our way of life, but we have seen unprecedented natural disasters and the increasing impacts of climate change.
The global community is now experiencing the social and financial impact of our changing world while adapting to an uncertain future.
Bermuda will certainly play an important role in a rapidly changing world—especially in the global transfer of risk. The Island is known as the ‘World’s Risk Capital’—a leading centre for insurance and risk products, and the Bermuda Stock Exchange (BSX) is one of the important pieces in our marketplace that helps communities around the world recover from disasters.
Launched in 1971 as a purely domestic exchange, by 1993 the BSX transitioned to an electronic platform, opened to international listings and is now the world’s preeminent fully-electronic offshore securities exchange.
At the end of 2019, the BSX was integrated into Miami International Holdings (MIH) Group of Exchanges with MIH obtaining a controlling interest in the BSX. Since its founding in 2012, Miami International Securities Exchange and its Exchange Group has been a generator of technological innovation by creating a comprehensive series of electronic exchanges that has challenged legacy technology.
This partnership provides additional support to the evolving global re/insurance risk market through innovative products on a global scale with a view toward the futures market.
The BSX is also responsible for the Mezzanine Listing Facility, which provides development stage companies a unique opportunity to list, and subsequently raise capital, on an internationally recognised exchange at an earlier stage than a traditional initial public offering. The majority of issuers are Bermuda-based, but the BSX also has issuers from North America, the UK, Europe and Asia.
The BSX has seen an increase in interest from the global capital markets for an alternative internationally recognised exchange platform for the listing of international debt instruments, especially from Latin and South America.
With the BSX’s exchange platform being fully electronic, and securities being dematerialised and held in electronic book entry form, addressing business interruption and resilience was more or less built into our platform from the beginning. As a result, the BSX was prepared to address business interruption from events such as COVID-19 with minimal impact on our robust operating systems which have proved to be efficient and resilient during this unusual period of market operation.
We continue to list new securities, and support daily trading, settlement and operation of our securities depository. This is in line with the World Federation of Exchanges’ ethos—that capital markets are essential in mitigating the effects of market disruptions such as those caused by the pandemic.
As of Q3 2020, the BSX had over 1,000 listed securities, including investment funds, debt and insurance related securities, as well as small to medium enterprise companies. BSX’s recent growth is due in large part to its innovative and commercial approach, which includes offering listed issuers speed to market, often in as little as two weeks.
Bermuda is one of the world’s leading jurisdictions for re/insurance, insurance-linked securities (ILS) and catastrophe bonds—sectors that are critical in aiding global economic recovery.
“The BSX is by far the world’s leading exchange for ILS, including listings from other jurisdictions.”
Alternative risk transfer
Since 2009, with the Bermuda Monetary Authority’s introduction of Special Purpose Insurer (SPI) legislation—aka the alternative risk transfer market—Bermuda has gained global recognition in the ILS industry and has benefited from its experience and leadership with practical, forward-looking risk-based regulation for insurance frameworks.
This acted as a catalyst for the supporting and listing of global ILS vehicles on the BSX.
Global issuance of ILS was approximately $42 billion at the end of Q3, 2020 and the BSX is by far the world’s leading exchange for ILS, including listings from other jurisdictions, with more than 500 listed issuers and $39.6 billion, or 95 percent of market capital outstanding at end of September 2020.
ILS has also been deemed a sustainable investment in accordance with the United Nations’ Sustainable Development Goals due to its role in helping private and public organisations to build resistance and resilience to natural disasters and climate change.
ILS investments and catastrophe bonds provide essential financing and liquidity when natural disasters strike. Such investments protect communities and infrastructure in times of emergency and help reduce the ‘protection gap’ (uninsured or underinsured risks) and increase resilience to such risks generally, even in times of prosperity.
Bermuda’s innovative approach as seen in the reinsurance industry has been reflected in the development of regulatory strategies to provide the market with certainty in the digital asset area illustrated by the implementation of the Digital Asset Business Act and initial coin offering legislation. The BSX is in the process of leveraging this important legislation to support market participants in this developing area.
While the BSX has focused on organic growth and developing the foundation of the exchange, we have also focused on our electronic exchange environment, helping our domestic capital market develop and gain international recognitions so that we are appropriately regulated and recognised to support future development.
The future is bright for the BSX—and for the foreseeable future Bermuda will be at the epicentre of the reinsurance and ILS market.
To learn more about the Bermuda Stock Exchange visit: bsx.com
Image courtesy of Shutterstock / Svetlana Lukienko