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Neon reported to be first to make a UK ILS application


Specialist Lloyd’s and Bermuda insurance and reinsurance company Neon Underwriting has become the first to make an official application to undertake an insurance-linked securities (ILS) transaction in the UK, according to a report.

With the approval of the UK’s Risk Transformation Regulations 2017 and the Risk Transformation (Tax) Regulations 2017 last week by a Parliamentary Delegated Legislation Committee, the ILS offering in the UK is now ready for use and encouragingly for the country a company has stepped forward already.

Neon Underwriting is the first to make an application for an ILS structure to the UK’s Prudential Regulation Authority (PRA), according to a report this morning from Reinsurance Magazine.

The re/insurer has made an application to undertake what is thought to be a $60 million ILS transaction in the UK, providing an initial test for the new regulatory regime right after its approval. The new regulations are expected to be passed into law today, Monday 4th December and this application provides the perfect test for the approval process by the PRA and the robustness of the UK’s ILS structure itself.

It is reported that Neon’s application sees the company looking to establish an insurance special purpose vehicle (ISPV), the structure that would be used for an ILS transaction. The ISPV would then look to securitise, within one of its protected cells, what is reported to be a roughly $60 million book of property catastrophe reinsurance business.

It was also reported that the transaction could be in place in time for the January 2018 reinsurance renewals, although this would be a stretch based on the turnaround times that the PRA has promised for new ILS vehicle applications. So the only way it would seem possible for this first UK ILS transaction to get done by 1/1 would be if it is fast-tracked in order to prove a point and demonstrate the new regulations being used.

That’s highly possible, given so much time and effort has been invested in the UK ILS regulatory regime. It would not be surprising to see the first ILS transaction pushed through much faster in order to show the regime works.

The article says that sources reported that Neon and its lawyers have already had preliminary discussions with the PRA, so it does seem that this first UK ILS deal may have been lined up in advance of the regulations being completed and as such it may be possible to push it through in time for the end of the year.

Getting the first UK ILS transaction through so quickly would be a positive spin for the UK’s regulations, which have been dogged by discussion that they may be slow compared to other domiciles. However, the pace will need to be maintained and rushing through one transaction just to prove a point could be counterproductive if future applications take more time.

This is positive news though and not just for the United Kingdom and London reinsurance market. It is positive for the ILS industry as a whole as it demonstrates that there is another option for those looking for a domicile for an ILS or collateralised reinsurance vehicle, adding greater choice and increasing the range of options available to ILS sponsors, investors and fund managers.

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