German reinsurance giant Munich Re has listed a $100 million insurance-linked security (ILS) on the Bermuda Stock Exchange (BSX) through its Irish special purpose vehicle.In a statement released yesterday, the BSX said its Listing Committee had approved the listing of the Queen Street II Capital Ltd issuance of $100 million of principal at-risk variable notes.Queen Street II is an Irish special purpose vehicle used by Munich Re to issue catastrophe bonds, which provide added capacity for the reinsurer.The notes listed in Bermuda, which will become due in three years, will provide Queen Street with the funds to meet its obligations.The transaction is structured under the BSX’s listing regulations for International Issuers of Insurance Related Securities.The BSX sees insurance-linked securities, which transfer risks from insurers to investors, as an important growth area. In January this year, the Exchange listed a $450 million cat bond through Lodestone Re, to provide coverage for American International Group’s property and casualty insurance arm Chartis.This followed a successful year in 2010, during which several companies capitalised on the Bermuda Monetary Authority’s new regulatory classification of Special Purpose Insurers, which provided a framework for companies looking to place catastrophe bonds. Among them were Chartis, State Farm and Flagstone Re.In an interview, BSX chief executive officer Greg Wojciechowski said that the Exchange had 15 listed entities in the ILS market comprising some $1.75 billion in investments.“There is an opportunity to establish Bermuda as the place for the insurance and capital markets to converge,” Mr Wojciechowski said. “We have the legislation in place and a regulator in the BMA which is focused on the insurance industry.”The BSX has worked closely with insurers to meet their needs from ILS and has seen a high level of interest from institutional and pension funds, as well as insurance professionals, he added.Cat bonds can be triggered by specified catastrophic events and insured loss levels to pay out to their sponsors, which can lead to a wipeout of investors’ funds. Investors are compensated for this risk with healthy rates of interest.Cat bonds have returned 64 percent over the past five years through March 18, with annual gains even following Hurricane Katrina in 2005 and the collapse of Lehman Brothers Holdings Inc in 2008, according to the Swiss Re Cat Bond Total Return Index.One of the bonds’ selling points, particularly attractive since the 2008 market meltdown, is that they have no correlation with the wider financial markets.The Cayman Islands has been the jurisdiction to set the pace in the ILS space. As of July last year, there were 74 cat bonds listed on the Cayman Islands Stock Exchange with a value of more than $7.7 billion.Mr Wojciechowski conceded that Cayman had done a good job offering its Special Purpose Vehicle classification as mechanism for cat bonds.Bermuda’s legislation had not been up to speed, but this had been recognised by some in the insurance management business, lawyers and the Exchange, he said. With the support of Government and the BMA, the new legislation was enacted to create a framework for ILS issuers.“We started well behind Cayman, but I definitely think we can compete,” Mr Wojciechowski said.“Bermuda is known for its experience and depth in the insurance industry, with a lot of operations in Bermuda and a lot of support around those entities.“With the regulatory innovation and level of insurance expertise we have here, we have done fantastically in a short time. Even though we made a late start we can catch up.”Mr Wojciechowski said the insurance and reinsurance industries had huge capital requirements that would expand in the future and that the Exchange’s growing expertise in ILS would help to fulfill that need.