Bermuda has a lot of catching up to do to match its offshore rival the Cayman Islands in the competition for catastrophe bond business.

Figures published by Cayman suggest the British Overseas Territory is the leading offshore jurisdiction for listed catastrophe bonds, with a market almost seven times as big as Bermuda's.

The are 74 bonds listed on the Cayman Islands Stock Exchange with a value of over $7.7 billion, the Caribbean island group reported this week.

Cayman's figures come a week after Bermuda published its official cat bond statistics, which showed that the BSX has 10 bonds listed with a value of $1.17 billion.

Catastrophe bonds are used by re/insurers to give them extra capacity to cover catastrophic risks, such as earthquakes or hurricanes. The bonds are normally linked to a particular type of catastrophe — for example a California earthquake or a Japanese typhoon — and cover a specific time period.

They offer attractive rates of return to investors, with the risk being that investors can lose all of the principal if insured losses reach a predetermined level and the cat bond is triggered.

The first cat bond was listed in Cayman three years ago, and the insurance related product has helped bring a broad range of benefits to insurers and the insured by helping increase the poll of funding and reducing insurance costs to end users on a global basis.

"When you consider that the first cat bond was only listed in April 2007 it has been a great success story for Cayman and the Cayman Stock Exchange, particularly since Bermuda has in the past had the leading position in insurance related products," said Cayman Finance chairman Anthony Travers.

"These are fully regulated and transparent structures and, contrary to the misperceptions that still persist among a hard core of left leaning European bureaucrats, are quite typical of the well structured financial products that are attracted to an offshore financial centre like the Cayman Islands precisely because of the quality of its legal and regulatory regime."

Bermuda has boosted its ability to get cat bond and other insurance-linked security (ILS) business by strengthening its regulatory framework for such investments.

Last year, as part of its shake-up of its insurance classification regime, regulator the Bermuda Monetary Authority created a category for Special Purpose Insurers (SPIs), which made it easier for ILS entities to be set up.

Three such entities have been listed on the BSX this year: State Farm's Merna Re II ($350 million), Flagstone Reinsurance Holdings SA's Montana Re transaction ($175 million) and Lodestone Re, from AIG's property and casualty insurance arm, Chartis, worth $425 million.

The BSX is expecting more such business, particularly since the Island is a global reinsurance centre.

"We would like Bermuda to become the platform of choice for the listing of cat bonds," said Greg Wojciechowski, president and CEO of the BSX, at a press conference earlier this month. "It makes sense, the sponsors are here, the special purpose insurers are set up here and the Exchange is here."