Why Pension Funds Are Finding Bermuda Captivating

Bermuda is becoming increasingly attractive as a place to invest pension assets, manage the risks associated with funding pensions, and to carry on a pension trustee business.

In the first instance, pension trustees' investments in insurance-linked securities (ILS) listed on the Bermuda Stock Exchange (BSX) have been rapidly increasing. ILS include investment contracts known as bonds issued by a special purpose insurer.

The BSX currently lists about one-third of the global catastrophe (CAT) bond market. In Bermuda, pension funds accounted for 14 per cent of all new CAT bonds issued in 2012 -- up from zero in 2007.

In the case of CAT bonds, the return an investor receives from holding the bonds is linked to the incidence of a specified catastrophe within a particular period. Depending on the level of principal at risk in any given bond issue, if a catastrophe occurs, all or a portion of the investor's principal is used by the insurer to pay claims arising from the