The United Kingdom’s insurance-linked securities (ILS) and risk transformation regulations were finally laid formally before the Parliament yesterday, one of the final steps required before they can be utilised by any ILS managers or reinsurers looking to transact collateralised reinsurance in the country.
As we wrote yesterday, this has happened later than expected which has delayed the final implementation of the ILS regulations and put at-risk the chance that an ILS transaction could be completed in time for the key January reinsurance renewal.
It had been hoped that the ILS regulations would be laid before Parliament in September, as soon as the government came back from its summer recess.
But that target fell by the wayside, as it was delayed by the UK’s political conference season, while priorities such as the Brexit negotiations have likely taken priority as well, pushing it further back.
So now, around a month or so later than had been hoped, the UK’s ILS regulations have been formally laid before the Parliament which means they are now ready for the next step which is to be debated in the House and then approved.
Of course, once politicians get their first chance to debate the ILS regulations there is a chance of a voice disagreeing with them, which could scupper their progress, although with financial regulations that doesn’t tend to happen very often.
More likely though, is the possibility that the debate could be delayed due to other government priorities right now.
Another final step is also required, as the Prudential Regulation Authority (PRA) of the Bank of England will publish its supervisory guidance on the ILS rules. This could be a formality, but it could also give the PRA a chance to opine on issues such as the tax neutral nature of the regulations and it is uncertain still whether it will give the regulations a full stamp of approval, or raise any concerns.
So it does seem unlikely that the regulations will be ready for use for 1/1, although they could be very soon after. Perhaps in time for an ILS fund manager to securitise a collateralised reinsurance arrangement from the 1/1 renewals even.
The market hopes for a smooth passage through Parliament and a quick response from the PRA, so that the UK can finally become a viable option as a location for transacting in ILS.