UK’s PRA updates ILS vehicle application forms & guidance notes

The United Kingdom’s Prudential Regulatory Authority (PRA), part of the Bank of England, has updated its application forms and guidance notes related to the establishment of insurance-linked securities (ILS) vehicles in the country.

The application forms for setting up an insurance special purpose vehicle (iSPV) have been updated, as too have the related guidance notes and a new set of frequently asked questions (FAQ) documentation.

The updates on the PRA website come on the heels of ongoing consultation with the ILS market by the Bank of England and PRA, as they seek to ensure that the UK’s insurance-linked securities (ILS) and risk transformation regulations are as efficiently implemented and easy to use as possible.

The regulators are also seeking to take into consideration as much feedback from the market as they can, to try to encourage ILS, insurance and reinsurance market participants to bring their catastrophe bond, ILS and collateralised reinsurance transactions to UK shores.

With competition for ILS transactions coming from an increasingly wide array of domiciles and more likely to come on stream in the months to come, the UK needs to demonstrate a responsive approach to taking into consideration the ILS markets feedback, to ensure its regulations and the guidance on how to use them are as up to date and effective as possible.

The UK has seen some success since it implemented the ILS regulatory regime, with a number of catastrophe bond issues including one renewal, a collateralised reinsurance sidecar placed and renewed, and a multi-use collateralised reinsurance Protected Cell Company (PCC) vehicle established in the UK.

However, it has been slower going than perhaps hoped for, resulting in a continued need for the regulator to ensure engagement with the market and to respond to feedback received.

Hence the publication of updated application forms for iSPV registration and the associated documentation to help sponsors and deal makers understand the UK’s ILS regulatory regime can only help in stimulating further interest in issuing cat bonds and collateralised reinsurance structures in the country.

We understand that the application forms have been simplified somewhat, while the associated documentation and FAQ’s provide improved clarity on the UK’s regulatory approach to issues such as collateral rollover.

On collateral rollover, the PRA says in the new FAQ that it is open to discussion on this, however its continued stipulation that contracts must always be fully-funded at all times is likely to be a hindrance to any progress on this specific point for now.

The idea is to help any applicants by making the process more straightforward, in the hope of encouraging greater use of the UK’s ILS regulatory offering.