Walkers clarifies the approval process for Irish insurance-linked security SPRV’s

Global law firm with a specialist team devoted to insurance-linked securities Walkers Group have published a useful client guidance document regarding the approval process for the establishment of Irish special purpose reinsurance vehicles (SPRV’s). Walkers had a number of client enquiries about the process which their ILS team took to a meeting with the Central Bank of Ireland and then published their guidance on the matter.

A summary of the guidance published by Walkers is below.

Authorisation and approval of a new SPRV for a catastrophe bond or ILS transaction should be quicker in Ireland than it was before as they can now be directly approved by the head of wholesale insurance supervision or an authorisation committee that can be convened at short notice (usually within three days). Previously they were approved at a monthly committee meeting.

The Irish Central Bank recognises that SPRV programmes rather than standalone structures can be cheaper for sponsors and while their haven’t yet been any established in Ireland the bank will welcome applications. However they note that in order for application for an SPRV programme to go through smoothly the Bank advises:

• the first Irish-based SPRV programme will likely involve additional engagement and scrutiny by the Central Bank. Local advisers should be engaged, and a meeting with the Central Bank should be organised, early in the structuring process;
• the process will be assisted if indemnity based triggers are used and the structure is straightforward utilising transparent collateral arrangements; and
• overall, we would estimate the process would take three to six months.

For an SPRV to be considered the Bank will look to ensure that the following conditions are met:

• the SPRV is to be at all times fully funded;
• the claims of investors must at all times be subordinated to those of the ceding reinsurer;
• proceeds of the issuance must be invested on a “prudent person” basis;
• there must be effective risk transfer with no significant basis risk in the structure; and
• limited recourse and non-petition language must be included.

Read the full guidance document from Walkers here.