UK introduces new rules for insurance-linked securities to boost market

The UK government has published new rules for insurance-linked securities (ILS) that aim to keep the UK at the forefront of the global reinsurance market. The government said the new regulations introduce “a competitive regulatory and tax regime for ILS, which will ensure that UK gets a share of this rapidly growing market”. It added that a UK regime will help to strengthen the sector’s contribution to the UK economy. There was some concern that the regulations would be delayed because of the result of the recent General Election, but the government has moved quickly to reassure the market. “By publishing these regulations today, the UK government is giving the insurance and reinsurance industry greater certainty in how the new regime will work– enabling them to be on the front foot in preparing for the new rules when they come into force in autumn,” said the government. It noted that more than $80bn of ILS have been issued to date, with in excess of $10bn issued in 2017 alone. “It is a rapidly growing market, with research showing that it could grow to an estimated $87bn by 2019,” the government pointed out. According to Willis Capital Markets and Advisory, the ILS market increased to $75bn last year, from $70bn in 2015. The regulations will be laid before parliament after the summer recess, and will come into force in the autumn. They set out how to establish special vehicles to issue ILS, the legal framework for ILS, and the associated tax treatment. The regulations also provide for a tailored and proportionate approach to authorisation and supervision, the government said. “This new bespoke regime for ILS will ensure the UK remains the most competitive insurance and reinsurance hub in the world,” said economic secretary to the Treasury, Stephen Barclay. “This global business is evolving rapidly and we are determined to make sure we’re part of this evolution.” The UK government has published a document that sets out the government’s response to the November 2016 consultation on draft ILS regulations and the final approach to the tax and regulation of ILS vehicles in the UK. It contains information on the responses received and further information on: - The corporate structure for multi-arrangement ILS vehicles to be used in the UK - The tax treatment for ILS vehicles and their investors - The approach to authorisation and supervision of ILS vehicles by the Prudential Regulation Authority and Financial Conduct Authority. The regulations are subject to their passage through parliament. Malcolm Newman, chairman of the London Market Group’s ILS Taskforce, said: “The new ILS framework offers a very exciting future for the London market to continue to deliver innovative new products that make a real difference. We believe there is a real appetite in the London market to invest in ILS products, which will bring investors to the UK and make a significant contribution to growing the UK’s trade.” The London market has been waiting for these regulations for some time, aware that this market was being monopolised by offshore domiciles. ILS business has tended to be conducted in offshore locations such as Bermuda and Guernsey. Both have recently introduced regulatory changes to boost the ILS market in the domiciles. In January this year, Guernsey followed Bermuda’s lead by establishing special purpose insurers (SPI) as a new class of insurer to include ILS, catastrophe bonds, collateralised reinsurance and sidecars. Under the new rules, SPIs licensed in Guernsey will be able to establish further SPIs without the need for additional applications. Financial services regulators in Guernsey also promised to authorise ILS companies within one day of submitting an application.

UK introduces new rules for insurance-linked securities to boost market

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