A natural next step: comments on the 2015 budget

The UK government announced plans to develop an insurance-linked securities (ILS) regime in the country, yesterday (March 18, 2015).

George Osborne, the UK Chancellor of the Exchequer, revealed the plans in his final budget speech before the May election.

Intelligent Insurer looks at the responses of senior figures in the London and Bermuda re/insurance markets, who have all welcomed the strategy.

Steve Hearn, chairman of the London Market Group (LMG) and deputy chief executive officer (CEO) of Willis, said: “LMG welcomes the Chancellor’s announcement that he will engage with the market to try and find ways of attracting more insurance-linked security business to UK.  This was one of the lead suggestions we put to the treasury in February.

“The proposals show the willingness of government to work with our industry to help enhance the business environment and ensure our ongoing success. We appreciate this and will ensure that the London Market plays its full role in developing the proposals in partnership with treasury, HMRC and our regulators. We look forward to this being the start of an ongoing dialogue to cover the other proposals we put forward.”

Dave Matcham, chief executive of the International Underwriting Association (IUA), also welcomed what it hopes to be a “positive first step in a long-term project for our industry to work collaboratively with HM Treasury to explore more ways of attracting international business.”

“The LMG, through an initiative sponsored by IUA Chairman Malcolm Newman, is already in close contact with treasury officials and we look forward to continuing this relationship in the months ahead.”

A number of commentators, including Ince & Co’s head of reinsurance in London, Kiran Soar, believe this is the natural next step for the London market.

This is on the assumption that the plans will go ahead even if Labour come in to power, which Shadow Chancellor Ed Balls confirmed this morning.

“The UK, and London in particular, has long been at the forefront of the international reinsurance market and that is something in part built on the firm foundations of the English legal system,” said Soar. “It is because we have a knowledgeable court system with a world class legal profession supporting the industry, on a scale and at a level of sophistication which simply does not exist in tax friendly offshore jurisdictions.”

“Adding ILS to London’s portfolio is therefore simply the next natural step. London’s credibility as a world leading reinsurance hub will also help dampen perceived fears that the ILS market is a ‘short term’ industry that has not been tried and tested,” he added.

“There have been few real ILS claims, but where there have been claims (in the US), a significant proportion have ended up in dispute. A move towards London can help change those negative perceptions.”

Across the pond, Bradley Kading, the president and executive director of the Association of Bermuda Insurers and Reinsurers (ABIR), has welcomed the plans. Traditionally, Bermuda has been the domicile of choice for ILS transactions but the association is not worried.

Kading said: “As Lloyd’s chair John Nelson said, Bermuda and London are both trusted competitors and partners.  ABIR members provide 24 percent of the capacity to the Lloyd’s market and have about £4 billion invested in 16 UK subsidiaries.

“We welcome the UK into the ILS market which further expands our business connections. The challenge now is to grow markets. The UK has set a good example with the reinsurance purchases for Flood Re and Pool Re,” he added.

“In the US Florida is leading the way with its substantial depopulation of the Citizens Property Insurance Corporation and its $4 billion plus risk transfer purchase. We need to work to eliminate restrictions on cross border trade and increase insurance penetration in Africa, Asia and Latin America. Let’s put this new capital to work.”