Industry experts have again emphasised the importance of speed to market if London is going to develop a competitive insurance-linked securities (ILS) framework, but expressed varied thoughts on what impact Brexit might have on the UK’s ILS ambitions.
The London market and UK government continues to work towards the establishment of a framework for transacting ILS business on its shores, and while this desire brings inherent challenges and complexities surrounding regulation and tax, the UK’s vote to leave the EU could bring its own implications for the development of an ILS hub.
Speaking to Willis Capital Markets & Advisory (WCMA) on the London Market Group’s (LMG) ILS initiative, Julian Enoizi, Chief Executive Officer (CEO) of Pool Re, said that leaving the EU would not be positive for London to attract ILS business from European cedents.
“In fact,” said Enoizi, “it would not be of any surprise if other European centres saw an opportunity to develop their own ILS market. The development of an ILS centre in Asia might also see an opportunity to capture business in Europe, which would have otherwise been regarded as the prerogative of London.”
The word Brexit is more often than not used alongside the word uncertainty, and this message was emphasised by Joanna Buckenham, Representative of the LMG. She said, “There is a great deal of uncertainty about post-Brexit Britain.”
“However, so long as London remains a centre of financial significance – which it doubtless will do – then I believe issuers and funds will find the UK attractive as an ILS platform,” added Buckenham.
A similar message was shared by the CEO of Leadenhall Capital Partners, Luca Albertini, who said that ILS activity will not be materially impacted by Brexit so long as there are London market-based insurers and reinsurers and fund managers that actively participate in the London ILS market.
“For the pure SPV business looking at EU based sponsors, Brexit could make London marginally less attractive, but given the tax regime in the UK, the Solvency II compliance (rather than equivalence), and the well regarded regulator, I would be surprised if London is viewed by EU sponsors at the same level of Bermuda, Cayman or Guernsey,” said Albertini.
On the broader London ILS market challenges, the group of industry experts, which also includes Katherine Coates, a Partner at Clifford Chance, agreed that speed to market, a favourable tax and regulatory environment, and also London’s ability to create unique selling points would be necessary for the market to flourish.
And the experts were also keen to highlight London’s deep and expansive experience and talent within its re/insurance industry as a positive for its ILS industry goals.
Regarding Brexit Coates focused on the need for a favourable and competitive regulatory environment, stating; “Provided that the new regulations combine adequate protection for cedants and investors with efficiency for sponsors, there is no reason why the UK should not be an attractive market for ILS, both within Europe and for cedants and investors outside Europe.
“It may be more difficult initially for the UK to compete with Bermuda in relation to US based cedants and investors as the Bermudan market is well established for US based business. However, if the establishment of a vibrant ILS market in the UK introduces further diversification of risks, then it is likely that US cedants and investors will also want to participate in the opportunities presented,” concluded Coates.
As noted, the impact of Brexit on the London re/insurance marketplace and its ILS ambitions remains unclear and uncertain, and only time will tell what implications, if any, the UK’s vote to leave the EU will have on its financial services industry.