Gibraltar finalises, publishes insurance-linked securities (ILS) guidelines

Gibraltar’s financial regulator, the Financial Services Commission (FSC), has finalized and published its guidelines for insurance-linked securities (ILS) following a consultation process with input from ILS experts from around the world.

Gibraltar, like many other domiciles, is readying its regulatory environment to be able to act as a domicile and host to insurance-linked securities (ILS) business, such as catastrophe bonds and collateralized reinsurance.

HM Government of Gibraltar, with the support and participation of ILS experts from around the world, established a working group that has been providing industry expertise and feedback over recent months as the ILS Guidelines were finalised.

Gibraltar’s ILS Guidelines have been prepared in line with Solvency II so as to be fully compliant based on the most up to date EIOPA position. Gibraltar plans to offer a new European Union (EU) domicile for cat bonds, sidecars and collateralised reinsurance based ILS transactions. Hence the need to work alongside industry to ensure the Guidelines and processes are fit for purpose.

Albert Isola MP, Minister for Financial Services, commented; “Gibraltar has a vibrant and growing insurance sector with some £3.6 billion of premium income in 2013. Last year the Government set out to develop and attract new insurance activity to Gibraltar with the ILS sector being a serious target market. I am most grateful to all those individuals and companies, from Gibraltar and abroad, that have invested significant time and provided invaluable input and know-how to the working group over recent months. I am confident that with their support and contribution Gibraltar’s ILS Guidelines provide both the commercial and regulatory frameworks to enable ILS business to flourish from Gibraltar.”

Joe Perdoni, the recently appointed Head of Prudential at the FSC, added; “We look forward to working with the ILS industry to develop this new insurance sector in Gibraltar, within a strong regulatory framework. The working group has been very supportive and provided valuable market insight to the FSC and I thank them for their contribution. We fully appreciate the time to market under which the capital markets operate in the ILS sector and we are confident that our Guidelines will support those market requirements whilst maintaining at all times a robust and highly professional regulatory environment.”

As with all the other domiciles seeking to get into the ILS business as a host to transactions and ILS entities, Gibraltar faces a tough battle against the established incumbents, such as Bermuda and the Cayman Islands, Dublin and Guernsey, which all host ILS business already.

Gibraltar has targeted the space as an ILS domicile with European credentials and Solvency II readiness, explained Michael Ashton, Senior Executive at Gibraltar Finance; “After extensive consultation with the ILS community Gibraltar offers a Solvency II compliant EU domicile for cat bonds, sidecars and collateralised reinsurances. Derivative contracts will also be permissible so long as there is a transfer of insurance or reinsurance risk from a ceding insurer or reinsurer through a specific contractual arrangement, subject as always to regulatory approval.”

Other domiciles seeking to break into the ILS space include Malta, the Isle of Man and Puerto Rico. However, with the ILS market expected to grow and the use of collateralized reinsurance vehicles becoming more widespread, there is every chance that these new domiciles will attract some ILS players to their shores. As we’ve said before though, there is a need to attract experienced service providers first to encourage issuers and ILS funds that the expertise required to operate in these new domiciles is adequate.