The UK’s top regulator, the Prudential Regulatory Authority (PRA) of the Bank of England, has updated its policy related to the insurance special purpose vehicle (iSPV) structure, in another set of changes designed to evolve and improve the UK insurance-linked securities (ILS) regime.
The goal is to make the United Kingdom a more attractive and competitive insurance-linked securities (ILS) domicile and the regulator continues to demonstrate that its goal is to respond to market feedback and enhance the regulatory environment for issuing and investing in ILS within the UK.
We reported back in July that a new consultation paper had been published by the PRA, featuring a range of tweaks to its policy for iSPV’s.
Now, the PRA has responded to the feedback it received from interested parties to that consultation and with a little additional clarification is set to update its policy with all of the measures featured.
The consultation paper contained iSPV policy proposals including:
- change to the legal opinion expectation for non-English law governed contracts;
- clarification on the number of senior management function (SMF) holders needed for an ISPV;
- clarification of approach to multiple cedants ceding risk to a single cell via a single contract;
- clarification on the interpretation of ‘quantifiable risk’;
- and clarification on the requirement for written policies for ‘standard’ applications.
Probably the most important of these is the first, as contractual arrangements in ILS are often drafted to be governed entirely under New York law.
Here, the PRA said it “retains its discretion to ask for a legal opinion, although it considers it unlikely to request one for standard transactions.”
This could be very positive for some issuers of ILS and catastrophe bond transactions, as it would make it a simpler process to shift domicile to the UK, if desired.
Updates to policy and clarification of rules show the PRA’s commitment to be flexible and to try and make the UK’s ILS market more active.
But still, the speed to market issue needs addressing, if issuers are to really embrace the UK as a place to bring catastrophe bonds and other ILS transactions to.
We understand discussion with market participants continue and the regulator is still working to come up with adjustments to the regulatory regime that could stimulate UK ILS issuance to become a more meaningful contributor to the economy.
The other issues covered have all been passed as per the proposals and you can read the full details of the updates coming to the UK’s iSPV rules here.