Neon approved for first UK ILS vehicle NCM Re

Specialist Lloyd’s and Bermuda insurance and reinsurance company Neon Underwriting has now received approval from the UK’s Prudential Regulation Authority (PRA) for the first insurance-linked securities (ILS) vehicle to be launched in the country since its new ILS regulatory regime was introduced.

Neon was the first company to put in an application for an ILS vehicle registration with the UK’s PRA, as it planned what has been said to be initially targeted as a roughly $60 million ILS transaction covering a book of property catastrophe exposed business. We’re told by a Neon spokesperson that the size of the initial transaction may be different by the time the arrangement is completed.

Neon has had its application to set up a UK-based insurance special purpose vehicle (iSPV), the spokesperson confirmed, the structure that will be used for an ILS transaction. The transaction would involve a single protected cell of the iSPV, we understand, with the reinsurance or retrocession premiums ceded to it from Neon’s London-based business.

Martin Reith, Neon Group Chief Executive, commented on the successful application saying, “I am delighted that NCM Re has become the first capital markets vehicle set to launch in the UK following the recent changes in legislation.

“Neon continues to make bold moves and this represents a historic milestone for the industry, as the UK seeks to become the go-to market for the convergence of insurance and capital markets.”

We’re told that the NCM, in NCM Re, stands for Neon Capital Managers, which we understand to be the name the company will use for its third-party reinsurance capital activities.

Being the first UK ILS vehicle application to be approved this is clearly an important moment for those involved in setting up the UK’s ILS regulatory regime.

Malcolm Newman, Managing Director of SCOR’s EMEA Hub and Chair of the London Market Group’s ILS Taskforce, said, “The approval of Neon’s application is a tremendous step forward for the London Market and a testament to the hard work of so many people in reaching the stage where a UK ILS vehicle has been approved so swiftly after the passing of the legislation. The process clearly can and does work and gives real impetus for other businesses to consider the UK.

“We have always said that our ambition is to grow the ILS pie. The use of ILS as sidecars for Lloyd’s syndicates is an example where the pie will grow.”

Newman implies that NCM Re will operate as a sidecar for Neon Underwriting’s Lloyd’s of London syndicate 2468, which could mean that the vehicle will be entering into a quota share with the Lloyd’s operations as a way to begin providing risk related returns to its investor backers.

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