Parliament inquiring into London market re/insurance regulation

A UK parliamentary group, the House of Lords Industry and Regulators Committee, has launched an inquiry into commercial insurance and reinsurance regulation, to assess its effects on the competitiveness of the London market.

The timing is interesting, given just last week we reported that the United Kingdom’s Prudential Regulatory Authority (PRA), which is part of the Bank of England, said that it recognises the need to improve the country’s authorisation process for insurance-linked securities (ILS) vehicles, noting that time taken is a factor.

Now, a parliamentary committee is asking whether current London insurance and reinsurance market regulation is ” well-designed and proportionately applied and the possibilities for optimising policy following Brexit.”

The inquiry asks for written submissions from industry participants and organisations, or interested parties, by February 11th, which can be submitted here.

The inquiry will look into the role of the current regulators, the Bank of England and Financial Conduct Authority, as well as the appropriateness of regulation, so their content and implementation and application by regulators, all relative to the risks posed by the London Market.

Customer interests will also be taken into consideration and importantly so will the effect of regulation on the London market’s global competitiveness.

That last item is key, as it speaks to some of the issues seen with insurance-linked securities (ILS) regulations in the UK, which have not, so far, served to increase the competitiveness of the London insurance and reinsurance market, despite that having been a key goal.

There have been multiple issues cited with the ILS regulatory regime in the UK, from tax treatment of ILS structures and vehicles, to overly onerous regulation, to the slow regulatory approval process and speed to market.

All of these have prevented the UK from developing a competitive marketplace for insurance-linked securities (ILS) such as catastrophe bonds, but they also mean that there has been a general distraction away from one of the original stated goals of the ILS regulatory regime, that it should serve to help make London a more competitive, efficient and effective insurance and reinsurance marketplace as well.

Hence, this inquiry could be an opportune moment for any ILS market experts to explain how the ILS regulatory regime in the UK could be a key driver of competitiveness for the London market and why that is important.

The ILS ambitions of the UK seem to have been more about attracting issuance vehicles to be domiciled there, rather than a more useful target of incubating ILS activities to the benefit of its insurance and reinsurance marketplace.

With ILS domiciles popping up all over the world, a refocusing of the UK’s ILS agenda towards one aiming to leverage all that is good about ILS for the benefits of its re/insurance market efficiency, could reap dividends for the country.

It would be very encouraging to see ILS considered within the broader London market insurance and reinsurance regulatory inquiry, asking how to leverage the regulations to the benefit of growing the London market, enhancing its efficiency and driving innovation.

Lloyd’s has provided a good example of this lately, as its London Bridge Risk PCC ILS structure has begun to see traction and become a new funding route for underwriters in that market.

While not as forward-thinking or innovative as attaching a transformer to Lloyd’s, to provide an efficient conduit in for capital and out for risk, the London Bridge Risk PCC structure has delivered a capital market access route that meets Lloyd’s goal and delivers on efficient funding for certain parties in the market.

So that’s an example of working with the UK’s ILS regulations to deliver something that has helped to move the Lloyd’s market forwards, an example the broader London market could also learn from.

The parliamentary committee wants to know:

• Is the UK regulatory framework appropriate for the commercial insurance and reinsurance sectors?
• To what extent do the Bank of England and Financial Conduct Authority apply and interpret regulatory policy in these areas in a proportionate manner and strike the right balance between regulation and competitiveness?
• How do the activities of the UK’s financial regulators affect the ease of carrying out commercial insurance and reinsurance business in the UK? What impact does this have on the availability and cost of insurance cover in the UK?
• What is the status of the London Market’s global competitiveness, and how is this impacted by different regulatory approaches in other territories?
• What improvements could be made to the regulation of commercial insurance and reinsurance in a post-Brexit context?

We’d like to think respondents may speak to areas that regulations around the ILS regime could be streamlined to help make the London re/insurance market more competitive and also attractive to players from overseas.

An integrated approach to ILS within the context of re/insurance market regulation could make London a really attractive place to do business, which is clearly the end goal that the parliamentarians want to achieve.

Interested? Have your say here.