EXCLUSIVE: ILS introduction to the UK comes closer

Negotiations started in March 2015, when the UK government unveiled plans to change regulations to allow ILS to be domiciled in the country. The LMG was asked to provide practitioner input to the group to look at proposals to change the UK’s tax and regulatory regimes.

Since then, an ILS task force has been created which gathered expertise from accountants and lawyers. Consultations took place with the Treasury, Her Majesty's Revenue and Customs, the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA).

“We have solved and come up with solutions for the licensing, the taxation, and the authorisation. […] We are going to have legislative changes coming in quarter four this year,” Malcolm Newman, chief executive officer of SCOR’s London and Paris hub, and leader of the LMG work stream, said at an LMG event in the City of London.

The LMG is still working with the PRA to get a competitive turnaround time with authorisations. In Bermuda such authorisations can be turned around within days, Newman noted. “We need to match that type of turnaround,” he said, suggesting that this could be challenging.

The Bermuda Stock Exchange entered the ILS segment around eight years ago, helping to increase the segment’s acceptance by the capital markets and helping to bring insurance coverage to parts of the world that are developing, under-insured or particularly prone to natural disasters.

Newman said that “there are a lot of organisations inside of Europe that wouldn’t necessarily want to trade with locations like Bermuda but will trade with London.

“There is huge enthusiasm for doing ILS business onshore in the UK and we are close to having a legislative program that will allow us to do that.”

In order to promote the project, he suggested the creation of an “ILS foreign aid cat bond” which could provide cover for un- or underinsured territories while using government’s aid contacts. “It would help the UK aid budget become much more predictable. They can draw any proceeds should there be an insured event,” he explained.

Instead of moving into the “commodity cat market” which is already very competitive, the strategy for the London Market would be to innovate into new solutions. “We are looking for our regulation to allow direct risk holders to place their risk into bonds without necessarily using risk transformers,” Newman explained.