London’s attempt to challenge ILS domiciles “failed” – LMG CEO

The London market’s attempt to challenge other insurance-linked securities (ILS) domiciles in winning ILS business to the UK has “failed”, the Chief Executive of the London Market Group has told the Financial Times.

An FT article yesterday evening stated that London’s insurance and reinsurance market needs to become a central part of the debate around the UK’s competitiveness on the global stage.

Recently, the UK insurance-linked securities (ILS) experience was held up as an example of regulatory failure to foster a new market opportunity.

With the UK’s competitiveness post-Brexit in question, the regulatory approach has been identified as an area hindering progress and approval of new initiatives, something which is said to have held back the development of the UK’s ILS marketplace.

In response to questions over its responsiveness and the general speed to market of ILS structure approvals, the UK’s Prudential Regulation Authority (PRA) of the Bank of England, the main financial regulator, recently promised “accelerated authorisation” for what it terms “credible” ILS sponsors.

As we also recently reported, the PRA is working to simplify its approach to ILS regulation, hoping the reinsurance market segment will “take off” in the country.

Against that backdrop, yesterday’s FT article cites LMG CEO Caroline Wagstaff as saying that London’s attempt to challenge other ILS domiciles has “failed”, given the low number of ILS securities issued so far in the United Kingdom.

Wagstaff said UK regulators are “slow and cautious and risk-averse,” saying “that doesn’t happen in Singapore or Bermuda.”

It’s another damning criticism of the way ILS regulation was implemented in the UK, highlighting the need for an adjusted approach if the UK and London are ever to take a greater share of this marketplace.

While failed is a strong word, it’s perhaps the approach of seeking to compete with established ILS domiciles, that seemed to make taking business from them the goal, which can be deemed a failure.

Rather, establishing effective, fast and efficient structures and regulatory processes to allow the UK’s own insurance and reinsurance marketplace, as well as Lloyd’s participants, to access the capital markets more readily, should always have been the overarching mission.

Which if implemented well, would in turn have resulted in a share of ILS business naturally coming back to London, as players sought to do more business locally, but also likely generated more risk transfer to the capital markets, which is perhaps a better primary goal.

As we said right back when the UK’s ILS regulator regime was in its early development, growing the overall volume of insurance and reinsurance risk transferred to the capital markets should always be the main goal of any new ILS domicile coming online.

The original strategy may have failed, or been stymied by the UK’s regulatory burden and layers of approvals required, but there is still every opportunity for the UK and London to benefit from the ILS market’s future growth, by making access to the capital markets as a source of reinsurance protection as streamlined and straightforward as possible.

Also read:

Regulator the PRA still aiming for ILS “take off” in the UK.

UK regulator to offer accelerated ILS authorisation for “credible” sponsors.

UK regulatory approach to ILS deemed “not fit for purpose”.

PRA’s work on UK ILS market continues with consultation on ISPVs.

PRA to bring “flexibility & speed” to UK ILS, fast-track standard structures.

Regulators “inflexible culture” hindered UK ILS ambitions: Lords Committee.

PRA looks to evolve UK ILS regime, after challenging start: Sweeney.

ILS an example of UK regulations failing to support industry: LMG CEO.

UK’s PRA wants to improve ILS authorisation process and speed.

UK Gov committee approves plan to exempt ILS from Stamp Duty taxes.

UK needs “flourishing insurance securitisation market” – TheCityUK.