The growth of the insurance linked securities market has stalled and needs to step up its issuance next year in order to continue expanding at a healthy rate.

That is the view of Morton Lane, president of Lane Financial, who was speaking about insurance and capital markets, and the impact of the financial crisis on the convergence process at the Insurance Linked Securities (ILS) Summit held at the Fairmont Southampton yesterday.

Mr. Lane discussed a range of issues from the obstacles to insurance-capital markets convergence and potential growth areas for trading of insurance risk by capital sector players to the impact of regulatory changes on the relationship between the two industries and the challenges ahead.

He kicked off the debate by highlighting the key factors behind the damage to the ILS market, including the collapse of Lehman brothers in September last year, a fear that the likes of Goldman Sachs, JPMorgan and Swiss Re would meet the same fate and a big sell-off of assets, including ILS, to raise capital.

Mr. Lane said the growth of outstanding ILS had started to fall, having reached about $14 billion in the middle of last year, and it is now close to $9 billion.

"In my opinion, the ILS market is at stall speed," he said. "For this market to continue to grow, we need to be issuing about $4 billion next year in terms of ILS.

"But I think that we will and we can — however, if low issuance happens in a very soft market it is conceivable that interest in this market could fade away.

"The simple message is that investment in ILS is 'a pure play and a secure play' and for the market to get out of stall speed we need to get across that message."

The speech was then turned over to a panel presentation, including Matthew Elderfield, CEO of the Bermuda Monetary Authority (BMA), Christopher McGlashan, senior counsel at Stroock, Stroock & Lavan, and Craig Seitel, CEO of Abacus Settlements.

Mr. Elderfield gave an overview of the latest regulatory changes for Bermuda's insurance industry, focusing on Bermuda Special Purpose Insurance (SPI) Legislation introduced this month.

He said the legislation was implemented for a new SPI class of licensed insurer, applied to sophisticated investors and covering fully funded risks, while all the SPIs were subject to BMA efficient authorisation process and the Authority had set up specific SPI guidance, including a first quarter consultation paper, the formation of an advisory group and third quarter guidance targeting SPI applications already underway.

Mr. Elderfield said the hot topic in terms of guidance at the moment was asset quality, while at the same time there was the need to provide transparency and disclosure.

Prior to the main session, Brad Kading, president and executive director of the Association of Bermuda Insurers and Reinsurers, talked about identifying the opportunities in the Bermuda insurance market.

Mr. Kading pointed out that the Island's insurance industry provided diversification of counter parties and stressed that it was not taking over the US and global reinsurance sector.

He said one of Bermuda's biggest strengths was its regulation with a fast speed to market in putting capital to work to meet the insurance market's needs.

But Mr. Kading said that Democrat Congressman Richard Neal's Neal Bill for the Introduction of Reinsurance Tax Legislation put forward in the US House of Representatives was among the greatest threats to the Island's insurance sector as it targets the international insurers, creates a punitive tax that makes use of affiliated reinsurance at any level uneconomic and effectively results in double taxation.

However, he said the Coalition for Competitive Insurance Rates was lobbying against the bill, arguing the case for international trade, the impact on consumers and business risk management, as backed up by research from the Brattle Group and Professor David Cummins.

"The effect of the Neal bill is to create a capital shortfall in the insurance business where there is none today," he said.