Insurance-linked securities (ILS) are central to keeping the UK’s insurance and reinsurance industry “at the cutting edge”, the Government says, and the work to bring the recently introduced ILS legislation in the UK is an example of how industry and Government can collaborate, to the benefit of the economy.
Tonight (Monday 26th March 2018), insurance-linked securities (ILS) sector investors have been invited to a reception at Number 11 Downing Street as the Chancellor of the Exchequer and industry body the London Market Group host an evening to mark the passing of the UK’s ILS legislation in December 2017.
As we explained last week, the Government is keen to demonstrate that it wants to help traditional elements of the UK’s financial services sector take advantage of the evolving marketplace.
Insurance and reinsurance is seen as a key element for the UK’s economy and one that has been facing competition from emerging techniques to transfer risk to the capital markets.
Hence the passing of a new insurance-linked securities (ILS) regulatory and tax framework is seen a way to help London re/insurers participate in the fast growing ILS market, ensuring it has more of the tools necessary for continued success at its disposal locally.
John Glen, City Minister, commented, “We’re committed to keeping the UK’s insurance industry at the cutting edge, and the new regulations passed last year are central to this. The first deal using the new regulations has already been announced, and I am sure that there will be many more to come.”
Malcolm Newman, Managing Director of SCOR’s EMEA Hub and Chairman of the LMG’s ILS Taskforce, added, “The development of a UK ILS framework is an excellent example of how Government can work collaboratively with the London Market to bring real and long-lasting benefits to the UK economy as a whole.
“This new legislation will open up a very significant global market to the UK – HM Treasury have estimated that global ILS capital now stands at around US$90 billion. Because the UK is such a well-regulated market, the LMG anticipates a real appetite from investors that will make a significant contribution to growing the UK’s trade.
“I have no doubt that the London Market will become an international centre for ILS as we are fortunate to have a unique cluster of intellectual capital and the presence of the world’s capital providers and managers. Add to that the introduction of a capability to conduct ILS onshore and we have a compelling proposition to take to market.”
The new UK ILS legislation has already been put to good use, with the first ILS authorisation, a reinsurance sidecar that was put in place by Neon to support the property underwriting portfolio of its Lloyd’s syndicate, was agreed within two weeks of the law being passed and according to the government there are other ILS vehicles in the pipeline.
Government backed terror reinsurance pool Pool Re and re/insurer Beazley are both said to be looking at the UK legislation as a structure for transferring risk to the capital markets and Lloyd’s itself is also exploring how it can bring ILS into its funding arrangements.
The Government hosted reception this evening will demonstrate to ILS investors just how significant the backing for the ILS market is at senior UK Government levels.
The fact that backing comes from the highest levels is testament to the success of the ILS business model and a sign of the level of importance placed on it, which suggests it will continue to grow and become a central component of global risk transfer markets.
However the level of traction achieved with the legislation will come down to its cost-effectiveness, efficiency and the speed to market achievable with ILS transactions in the UK compared to other ILS-ready domiciles.