UK ILS regulations to “grow the ILS pie” – London Market Group

The approval of the UK’s Risk Transformation Regulations 2017 and the Risk Transformation (Tax) Regulations 2017 yesterday by a Parliamentary Delegated Legislation Committee, will ultimately help to “grow the ILS pie”, according to the Chairman of the London Market Group’s (LMG’s) ILS Taskforce.

The ILS Taskforce, which has been pushing forwards the United Kingdom’s mission to become an ILS issuance domicile, bringing together the insurance and reinsurance industry with the UK government in a collaborative venture, has been instrumental in getting the regulatory regime for ILS finally approved.

But the goal is more than just taking a share of the ILS market, Malcolm Newman, Managing Director of reinsurance firm SCOR’s EMEA Hub and Chairman of LMG’s ILS Taskforce, highlights that the aim is to grow the size and scope of the ILS market, which will be a benefit to everyone.

“The taskforce has consistently said that it seeks to grow the ILS pie. What the recent natural catastrophes across the US, Caribbean and Mexico have demonstrated very clearly is the extent of under insurance, even in developed countries. As an industry we need to be more vocal about the social good of insurance, demonstrating the resilience and critical support an insurance policy gives to its holder in the event of a disaster. Through doing this the pie will grow and there will be opportunities for London Market players to generate growth via both traditional cover and new ILS solutions,” Newman explained.

The London Market Group (LMG) said that it is, “Pleased to welcome the decision taken yesterday by Delegated Legislation Committee,” adding that it expects the formalities to pass the regulations into law to occur on Monday 4th December.

Nicolas Aubert, Chairman of the LMG, commented, “This is a great example of the market working closely with the government to improve the business environment in which we operate. Looking back at where we started in April 2015, our original wish list has pretty much been delivered in full and we appreciate the support that we have received from HM Treasury, the PRA and the FCA.”

This has been an important and long process for the London market and the UK’s insurance and reinsurance sector, although just how much incremental business it brings to the UK and into the ILS sector does remain to be seen.

But Newman highlighted that the regulator hopes to assist those who may seek to establish ILS vehicles in the UK, which could make things a little smoother than many have expected the process to be complicated.

“Undoubtedly the regulations will evolve over time as the ILS market itself evolves, and we are encouraged by the PRA’s willingness to engage in pre-application dialogue with parties interested in using the new regulations. This dialogue should minimise any issues applicants may have with the regulations,” Newman said.

With the UK’s ILS regulations now ready to be enshrined in law it is only a matter of time before some collateralised reinsurance or ILS business is undertaken in the country. How much ILS business this generates will be interesting to watch, but if the mission of growing the ILS pie is achieved, this could be beneficial for all ILS market participants and domiciles.

Join us in New York in February 2018 for our next ILS conference