London ILS could be a game-changer

New UK regulations designed to enable an insurance-linked securities (ILS) market in the London Market could have the potential to be a game-changer for parts of the ILS markets but much still depends on how the Prudential Regulation Authority (PRA) adopts and embraces the concept, with the regulator having the potential to make or break the market.

That is the view of Luca Albertini, chief executive, Leadenhall Capital Partners, who sat on the taskforce charged with offering advice and expertise to the UK government ahead of the regulations being drafted and implemented.

Albertini told Monte Carlo Today that, while it is not the intention of the market to take business from established ILS domiciles such as Bermuda, some issuers may prefer to use London because it could simplify the way deals manage the tax implications.

“If you are sitting in London doing this through Bermuda, there are tax consequences and risks around that. If you move these deals to the UK, you might reduce the legal opinion around those risks by around 75 percent. If it works, some issuers will like that,” Albertini said.

He stressed that smaller, private placement deals would certainly fall into this bracket whereby issuers might prefer to pursue the path of least risk. “For me, it would seem that this would be a cleaner transaction process than a London manager doing it through Bermuda,” he said.

He added that, while he believes the new legislation can work, aspects of it are not ideal. “I don’t see any big showstopper except possibly the one thing that is missing: regulation from the PRA around this.

“That could make or break it and, while I believe no-one has the intention of breaking it, it will be interesting to see how that pans out.”

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