Insurance Linked Securitues (ILS) allow insurers and reinsurers to transfer risks to the capital markets, and is seen as an alternative to the traditional reinsurance market. Originally announced in 2015, the new ILS regime came into being in the UK at the end of 2017. The aim is to make London the place to do ILS business, rather than offshore jurisdictions such as Bermuda and the Cayman Islands.
The relevant regulations now in place are the:
Risk Transformation Regulations
The corporate and regulatory framework introduced under the Risk Transformation Regulations 2017 has introduced the Protected Cell Company (PCC) regime. In effect, PCCs enable a series of transactions to be managed through multi-arrangement ISPVs comprising a core and a number of cells. At the same time, the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) has provided a streamlined authorisation and supervisory process to enable ILS to be issued quickly and efficiently.
Risk Transformation Tax Regulations
The Risk Transformation Tax Regulations 2017 has set out a bespoke taxation regime for Insurance Special Purpose Vehicles (ISPVs) to enable them to compete with offshore jurisdictions. ISPVs will not be subject to corporation tax or withholding tax so long as they are qualified transformer vehicles, and they are authorised to carry out risk transformation activities.
Although the regulatory regime is in place, how much ILS business is attracted to London is open to question, as the uncertainty of Brexit continues to prevail.