Beale mulls ILS solution to protect Lloyd’s market using new UK regulations

Lloyd’s is exploring the possibility of issuing insurance-linked securities (ILS) using new regulations that will allow them to be issued from the UK to protect the market, Inga Beale, chief executive of Lloyd’s, told Monte Carlo Today.

Beale said that once new regulations allowing ILS issuance from the UK come into force—expected in the fourth quarter of this year—she is keen to help kick-start a London ILS market, ideally by helping pave the way for some early deals.

One tactic to achieve this is by working with the London Market Group’s (LMG) ILS taskforce led by SCOR executive Malcolm Newman, which is exploring a possible deal designed to cover emerging market risks.

While Lloyd’s will encourage its members to leverage the new ILS framework in the UK, Beale said that she was also exploring the possibility of using it to benefit the market as a whole.

“My guess, watching how quickly the capital markets can work, is that we will see some rapid issuance using the new facility,” Beale said.

“The LMG is going to look at this and get something going around uninsured risks, possibly in emerging markets. It would be good to see something like that launched quickly.

“It is early days and nothing concrete exists yet but we will also explore the possibility of Lloyd’s using this form of risk transfer centrally, on the behalf of the entire market.

“The main focus for now is how members could benefit individually, but if there is a way we can use it to benefit the entire market, we will.”

Beale said she had received good feedback from investors interested in ILS deals issued from London. She believes it represents a very positive move for London at a time of uncertainty in other areas.

“Once this comes into force, it is really good news for the London Market—it fills a gap in our financial services offering that I think the market will use. We recently hosted a gathering of the Geneva Association’s chief investment officers and their reaction was very positive.

“There is capital swilling around and this gives us and our members access to that capital to pass off some of our risks. In the context of some of the other uncertainties the UK is facing, such as Brexit, this is very good news,” she said.

Positive influence

In terms of Brexit, Beale said Lloyd’s was using all available channels to try to influence the negotiations in a positive way. It is working through representative bodies such as TheCityUK, the Association of British Insurers and the LMG to ensure that a consistent message is being delivered to politicians.

“I think we have the attention of the relevant people who can influence what we want,” she said.

She does have real concerns about some aspects of Brexit, however. Her biggest worry—and the main focus of the market’s lobbying at this stage—is around ensuring transitional arrangements are in place to ensure in-force policies and outstanding claims can continue to be serviced in the same way while new regulations are agreed.

“We need a grandfathering arrangement in place whereby there will be continuity for contracts during and after the transitional process,” she said.

“There is no way the courts are going to be able to cope with so much business being transferred to different subsidiaries so we need a transitional arrangement in place for as long as possible. We cannot have a situation where we cannot pay claims.

“This is very important. There is no benefit to anyone if something is not agreed on this. All the regulators concerned understand this but it is important that a grandfathering arrangement is put in place.

“We have not completely given up on retaining full market access but I don’t know how likely that is. We have obviously taken our future into our own hands by committing to an office in Brussels to ensure continuity but a solution does need to be found so that existing polices and claims can be dealt with after Brexit is complete.”

Beale said Lloyd’s remains on track to get its Brussels hub ready to take business in time for the January 1, 2019 renewals—well ahead of the likely timing of the UK’s formal departure from the EU. The formal application for a licence will be submitted soon and it will start considering hires and finding an appropriate location for the office after that, she concluded.

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