Gibraltar. An ILS positive for London post-Brexit?

The UK’s vote to leave the European Union will not impact Gibraltar’s insurance-linked securities (ILS) offering to EU ceding insurers, and the region’s relationship with the UK’s financial services business is positive for both London’s and Gibraltar’s ILS ambitions, according to industry experts.

According to Dr. Liam Fox, one of the key Brexit ministers in the UK government, Gibraltar’s passporting rights into the UK in a post-Brexit world appear to be secure, and the government remains intent on maintaining that access.

“When it comes to financial services, there are strong mechanisms already underpinning Gibraltar’s access to the UK market which are enshrined in UK law,” said Dr. Fox.

Exactly how the Brexit vote will impact the London, UK and broader insurance industry, which includes reinsurance and ILS, remains uncertain, but industry experts have discussed the impact it could have on Gibraltar’s ILS and financial services business, and its relationship with the UK.

“Gibraltar’s ILS offering to EU ceding insurers will not at all be impacted by Brexit. Ring fenced funds based outside the EU are fully admissible under Solvency II thus allowing both European and non-European insurers to fully benefit from the fast track set-up and speed to market under the Gibraltar ILS regulatory regime. In addition, investors will benefit from Gibraltar’s tax neutrality and from its very low operating costs,” said Steven Lawler, Director, Aon Insurance Managers (Gibraltar) Limited.

London has ambitions to become an international ILS hub and legislation and regulation is expected to be in place in 2017 to facilitate this. With Gibraltar already having the necessary guidelines in place for ILS, and thanks to its strong ties with the London and UK financial services sector, Brexit could further strengthen the relationship between the pair, and even facilitate expansion.

“This unique relationship with the UK in financial services offers the opportunity for Gibraltar post Brexit to further strengthen its ties with the London insurance market helping to facilitate and complement London Market activities in ways that small, nimble and service orientated insurance jurisdictions can do whilst maintaining high levels of regulatory professionalism.

“We believe 2017 is the right time for Gibraltar to raise its profile and credentials as an ILS jurisdiction particularly in partnership with the London Market,” said Albert Isola MP, Minister of Commerce, HM Government of Gibraltar.

“Where Gibraltar enjoys single market access onto the UK such as insurance, reinsurance, insurance mediation, banking, investment services and e-money these will continue post Brexit,” added Isola.

The relationship between the UK and Gibraltar was further highlighted by Robin Walker, Parliamentary Under Secretary of State at the Department for Exiting the European Union. Walker highlighted how the Gibraltar Government explained to the British Government just how important the UK marketplace is to the region.

“In financial services, for example, 90% of Gibraltar’s business is with the UK. It’s important that we work together to maintain and strengthen those ties,” said Walker.

Gibraltar’s first ILS transaction was completed in 2015, a €100 million lottery winning risk collateralized reinsurance transaction that was renewed the following year, and Isola commented on the preparation Gibraltar undertook prior to its first ILS transaction.

“As part of our preparations for ILS we consulted with major ILS businesses around the world and their experience and advice was invaluable in drafting the ILS Guidelines published by our financial regulator, the GFSC. The Guidelines set clear timelines to ensure ILS transactions in Gibraltar can be authorised within the time constraints demanded by the capital markets,” said Isola.

Gibraltar clearly has an ambition to expand its ILS business and really grow as an international hub, drawing on its relationship with London to bolster its global position in a post-Brexit world.

The ability and desire of the region to expand its ILS business was noted by Michael Ashton, Senior Executive Gibraltar Finance.

“Generali’s recent Horse Capital I bond was of particular interest as Gibraltar’s insurance sector is dominated by motor insurance with Gibraltar motor insurers estimated by one of the Big 4 Accountancy Firms to have a 21% share of the UK motor insurance market. Gibraltar is also one of the world’s leading jurisdictions for online gaming employing over 3,500 people, having attracted many of the largest European gaming companies.

“There is much debate about whether the ILS sector will expand significantly into new classes of business. With motor insurance and gaming two of Gibraltar’s largest sectors and an increasing interest from people looking to establish life insurers in Gibraltar – longevity swaps and bulk annuity transfers – we are keen to develop as a home for life ILS transactions.

“Finally, there is GSX, Gibraltar’s stock exchange, which has been operating for two years and specialises in listing debt securities. GSX provides fast to market, low cost listing and passporting solutions in corporate and convertible bonds, asset backed securities and derivatives,” said Ashton.

Colin Scagell, a Partner at global lawfirm Mayer Brown, also cited the recent innovative motor-third party liability ILS as a potential opportunity for Gibraltar’s insurance sector.

“With the (marked) growth in the size of the ILS market over the last few years we have seen growing investor interest in diversifying risks beyond natural catastrophe. The recent success of the Horse transaction, which brought to market a fairly novel risk in the form of exposure to an auto insurance book of business, is an example of this. We expect this trend to continue and it may provide opportunities for motor insurers in Gibraltar to consider an ILS transaction,” Scagell said.

Signaling that Gibraltar is ready to support the continued growth and development of global ILS markets Joe Perdoni, Head of Prudential, Gibraltar Financial Services Commission, said; “The Gibraltar Financial Services Commission, as an accessible, professional regulator, welcomes the further development of Gibraltar as an ILS jurisdiction.”

Gibraltar, London’s gateway to ILS:

Aon Insurance Managers (Gibraltar) and Gibraltar Finance are co-hosting a one-hour event at 17:00 in London on Wednesday 5th April 2017, titled Gibraltar, London’s gateway to ILS.

The event will be addressed by speakers including:

• Albert Isola MP, Minister for Commerce, HM Government of Gibraltar
• Michael Ashton, Senior Executive, Gibraltar Finance
• Stephen G. Rooney, Partner and Co-leader Insurance Industry Group, Mayer Brown International LLP
• Joe Perdoni, Head of Prudential Supervision, Gibraltar Financial Services Commission
• Christian Roberts, Assistant Portfolio Manager, Securis Investment Partners
• Nigel Birrell, Chief Executive Officer, Lottoland
• Steve Britton, Managing Director, ILS, Aon Insurance Management

Venue: Gibraltar House, 150 Strand, London, WC2R 1JA. For further information and formal invite, email [email protected].

To register to attend, click here.