Isle of Man the latest domicile seeking to enter the ILS & cat bond space

The Isle of Man’s Insurance and Pensions Authority (IPA) is the latest offshore domicile which is seeking to introduce insurance special purpose vehicle (SPV) legislation, as it hopes to attract insurance-linked securities (ILS) and catastrophe bond business.

A number of domiciles have expressed a desire to attract more ILS, cat bond and collateralized reinsurance business in the last year, hoping to compete with the two dominant domiciles in ILS, Bermuda and the Cayman Islands.

Guernsey is currently seeking to raise its profile in the ILS space, although it does already have an active role in ILS with a growing number of protected and segregated cell structures being used for collateralized reinsurance deals and ILS funds using the domiciles regulatory environment and structures to do business.

Dublin is in a similar position to Guernsey, of wanting to attract more ILS business, although it has already had a number of 144A catastrophe bonds from European sponsors and also some collateralized reinsurance sidecar vehicles, cells and a number of ILS funds domiciled there, so it too has a head start.

Other domiciles targeting the ILS space and that have recently enacted insurance special purpose vehicle laws include Gibraltar, Malta and Puerto Rico, all of whom are actively seeking to gain a first share of the ILS market. For these newcomers it is important to differentiate themselves, be competitive and to encourage international service providers to their shores in order to attract business.

The Isle of Man regulator launched a consultation, which closed on June 19th 2014, aiming to create a framework with which ILS business in the Isle of Man can flourish; this would include allowing transactions such as catastrophe bonds, mortality bonds & life ILS, sidecars, industry loss warranties and other collateralized re/insurance structures. The Isle of Man also has a protected cell companies regime with its PCC’s also available for use in collateralised reinsurance deals.

The Isle of Man’s draft ISPV framework offer a rapid regulatory process promising a five day turnaround from receipt of a completed application, low regulatory fees that can be set for multi-year periods, good access to the regulator with an ability to meet where needed and a transparent and flexible license process including allowing certain arrangements to be concluded post authorisation.

In a recent interview IPA’s senior manager for policy Alan Rowe, said; “The IPA was requested by the industry to bring forward legislation as ISPV/ILS business is well suited and attractive to the island.”

So clearly there is optimism and a general idea that bringing ILS business to the Isle of Man will benefit the local market, the island’s economy and other service providers on the island.

This point is emphasized in part of the proposal, which reads; “It is believed that the implementation of the proposals will have a positive impact on the ability of the Island’s insurance sector to attract originators of ILS transactions and similar structures to utilize the Isle of Man, with corresponding new business benefits potentially accruing to insurance managers, professionals and financial services providers located in the Isle of Man.”

The Isle of Man will also need to attract specialist service providers, in terms of experienced ILS lawyers, administrators and insurance managers to help it to meet its goal. The ILS market needs to see that a domicile has all of the facilities, service providers and infrastructure to support transactions and after that it will end up coming down to service levels, value added benefits of using one domicile over another, geography and local laws and of course price.

The new domiciles on the block face the tough task of attracting business away from the established ILS domiciles, but there is room in the market for a selection of domiciles to be available to issuers and funds. Some issuers will want to locate their SPV’s or collateralized structures in particular regulatory environments or regions, so as the market grows so should the demand for a range of domiciles.

With the consultation period now over the Isle of Man just has to finalise any amendments to its ISPV legislation as a result of feedback it has received. Once that is completed a final set of rules will be filed and come into effect and the island will be open to ILS business.

Alan Rowe told Artemis; “The next steps involve amending the draft framework for any changes arising out of the consultation, completion of a final review and obtaining final approval by the Insurance and Pensions Authority. It is currently anticipated that the framework will become operational in August.”

By laying the groundwork now, domiciles like the Isle of Man hope to be in a position to capitalise on the continued growth of the ILS, collateralized reinsurance and catastrophe bond market, with a regulatory environment that is attractive to issuers and the facilities and structures in place and ready to go.

The Isle of Man is aware that it is playing a catch-up game with some better established ILS domiciles but feels that it can offer a mature regulatory environment with an established regulator to ILS players looking to diversify where their deals are located.

Rowe continued; “Obtaining traction is, of course, a factor and the Isle of Man’s insurance industry will have a large part to play in that regard. The Isle of Man has a mature life and general (mostly captive) market having overall funds under management of £58bn. It also has a strong, professional, supporting infrastructure including the large international insurance brokers.”