Bermuda is leading the world in the issuance of insurance-linked securities (ILS).

A report published by the Bermuda Monetary Authority shows that $3.5 billion of ILS, predominantly catastrophe bonds, were issued by Bermuda-based Special Purpose Insurers (SPIs) during the first three quarters of this year.

That means the Island is on track to overtake offshore rival and erstwhile market leader the Cayman Islands — which over the same period issued $1.8 billion of ILS — to become the dominant domicile in the sector for the first time.

The BMA released its first quarterly “Bermuda Insurance-Linked Securities Market Report” yesterday.

The report offers a detailed picture of the ILS market, highlighting and listing deals done; analysis of the types of risks they cover, the investor base and cat bond returns; and the regulator’s overview of the market. In addition, there is a background section on the evolution of ILS, their benefits and drawbacks, and the structure of securitised risk.

Impressive statistics pepper the report, depicting vigorous growth in the ILS market, both globally and in Bermuda.

For example, the Bermuda Stock Exchange accounted for more than 40 percent of the global issuance of ILS by the end of the third quarter of 2013, with a total of 34 ILS, comprising 43 tranches, listed with a nominal value of $7.9 billion.

Bermuda accounted for more than 62 percent of third-quarter global issuance of $1.7 billion, which was more than double the $804 million issued in the third quarter of 2012.

“The outstanding amount of ILS issued in Bermuda thus far represents more than 40 percent of the worldwide stock of ILS,” the BMA report states.

“Given the rising demand for cost-efficient (re)insurance capacity, the global amount of outstanding ILS reached a record $19.5 billion at the end of the quarter, with $8 billion of this total having been sponsored by Bermuda-based SPIs.

“Since 2010, the BMA has licensed 87 SPIs, covering predominantly North American and European perils.”

The BMA adds that the Island is also host to foreign ILS listings, which augment the depth of the secondary market.

The report notes the market for Alternative Risk Transfer (ART) instruments had grown and that some reinsurers had created capital market divisions to increase capacity.

Capital market investors in search of higher yields and greater diversification for their portfolios had supported ILS growth, the BMA notes. “However, it remains to be seen if the current demand will be sustainable when yields from traditional assets eventually normalise,” the report adds.

The ILS market remains relatively small, with a 15 percent share of the global reinsurance market last year.

The majority of ILS account for North American perils, which make up 60 percent of total volume.

The full report is attached to the online version of this article at www.royalgazette.com and can also be read on the Bermuda Monetary Authority website, www.bma.bm.