Collateralised reinsurance focus for London (LMG) ILS task force

The insurance-linked securities (ILS) and reinsurance industry task force, set up by the London Market Group (LMG) and HM Treasury to make London a hub for ILS business, is to focus initially on collateralised reinsurance business.

Established in May, the LMG task force has been set the goal of making London an attractive hub and domicile for all types of ILS business, including catastrophe bonds, collateralised reinsurance and other third-party capital backed insurance structures.

The initial concern had been that London would simply seek to throw its hat into the cat bond domicile ring, a space that has become crowded in recent years as many offshore domiciles have sought to compete with market leader Bermuda and other domiciles such as the Cayman Islands.

That led us to write that the formation of the ILS task force is an opportunity for London to think bigger, rather than simply to try to attract a portion of a business that Bermuda facilitates so effectively.

A number of participants in the LMG’s ILS task force subsequently told us that they would be pushing for London to become a hub for collateralised reinsurance, rather than catastrophe bonds, as they felt the initiative needs to focus on innovative new ways to make use of the London insurance markets expertise and access to business, rather than simply replicate what others have done so well.

Ideas such as a collateralised “whole of Lloyd’s” sidecar and fronting vehicles to make it easier for third-party investor capital and collateralised markets to augment Lloyd’s capacity were mooted, by ILS players we spoke with.

Yesterday the LMG Secretariat sent a brief statement to clarify the intent of the ILS task force and where it would be focused initially.

“The LMG ILS taskforce is seeking to make it possible to conduct all types of ILS activity onshore in the United Kingdom. Given Bermuda’s established position in the cat bond market it is expected that London will initially be competing for the more innovative solutions such as collateralized reinsurance,” according to Malcolm Newman CEO of SCOR’s Paris/London Hub and sponsor of the LMG’s ILS task force.

The focus on collateralised reinsurance will perhaps please the other ILS domiciles, as this is an area that London can innovate and actually help companies or investors operating out of locations such as Bermuda.

At some point London will also focus on catastrophe bonds and it should be expected that a new cat bond special purpose vehicle structure will likely be created. However the focus on collateralised reinsurance will, over the long-term, likely be more profitable for London and also better for the growth of the ILS and reinsurance markets.

Also read:

– London has to fight its corner on ILS: Michael Wade, Cabinet Office.

– London ILS task force participants revealed, holds first meeting.

– LMG sets up London cat bond & ILS group, a chance to think bigger.