The UK in 2017 sets the foundation for an ILS hub

In 2017 the UK introduced legislation to make the jurisdiction a hub for insurance-linked securities – a move that could represent an important shift in the ILS landscape, according to executives interviewed by Intelligent Insurer for our year-end questionnaire.

In November, a UK government cross-party committee has approved the Risk Transformation Regulations 2017 and the Risk Transformation (Tax) Regulation 2017, which are aimed at establishing London as a hub for insurance-linked securities.

The regulations introduce a regulatory and tax framework for ILS business in the UK, which would enable re/insurers to transfer risk to the capital markets.

“During a year that had many moments of change, we believe that one of the most important is the adoption of new legislation to support the ILS industry in London,” said David Gittings, chief executive of the Lloyd’s Market Association.

Catastrophe bond issuance has reached a record high in the 12-month period ending June 30, 2017, while alternative capital reached a new high.

So far, Bermuda is the leading jurisdiction for the issuance of the securities. ILS issued from Bermuda represented 76.1 percent ($22.5 billion of $29.5 billion) of total outstanding capacity at the end of the second quarter of 2017, according to data from the Bermuda Monetary Authority.

But London may be the next big player.

“For centuries Lloyd’s has made its name by leading innovation in the global insurance market, not just by insuring risks that others shied away from but also by its flexibility in leading the development of new products and new ways to finance risk,” Gittings noted.

“The Risk Transformation Regulations 2017 and the Risk Transformation (Tax) Regulations 2017 are something the LMA and others worked hard to achieve, and we are heartened to see a Lloyd’s business was the first to take advantage. We have heard some suggest that ILS is cutting into our business, but the solution is to make it our business,” Gittings said.

“In practice, many Lloyd’s managing agencies have done just that over the past several years: some of the strongest and most promising alternative capital players are connected directly to existing Lloyd’s managing agencies, and many syndicates use some form of capital markets’ capacity in their retrocession programmes,” Gittings added.

This is just a snapshot of what executives told us in our Christmas questionnaire. For the full comments from all 16 executives that took part in our survey, please click here.