Insurance industry hopeful of UK gov ILS draft introduction framework

The UK government has revealed a draft publication of the regulatory framework for the trading of insurance-linked securities (ILS) in the UK which will allow London to compete with reinsurance hubs like Bermuda.

ILS offers insurance and reinsurance firms a means of transferring risk to the capital markets. ILS is commonly used to mitigate catastrophic risk arising from natural disasters. The UK government believes that, with the right framework, the UK can make a major contribution to the continued growth and development of the global ILS market.

The UK government has published for consultation two sets of draft regulations: the Risk Transformation Regulations 2017 and the Risk Transformation (Tax) Regulations.

The director general of the Association of British Insurers, Huw Evans, said: “The ABI welcomes the HM Treasury consultation on proposed regulatory framework for Insurance Linked Securities regulations and the PRA (Prudential Regulation Authority) and FCA (Financial Conduct Authority) consultation on their approach to the authorisation and supervision to develop a new competitive regime in the UK for ILS vehicles. It is essential that the UK’s approach to administrating the regime is equivalent to that of the jurisdictions with which it will be competing if the market is to flourish.”

New UK regulation that would facilitate the issuance of insurance-linked securities (ILS) from vehicles based in the London Market will be critical to help London protect its status as a global hub for risk transfer, Inga Beale, chief executive of Lloyd’s, told Intelligent Insurer during the 2016 Baden-Baden industry meeting.

In reaction to the government’s November 23 announcement, Beale said: “It is clear that London should be competing in the ILS market which will bring considerable benefit to the London Market as a whole, so we welcome today’s announcement from the Government. ILS capital has been growing, particularly in global reinsurance, and the London Market has the expertise and talent to select the risk that it wants to invest in. We look forward to working with the government and the LMG (London Market Group) to ensure that this work can help London maintain its position as the leading global hub for reinsurance.”