UK gov publishes ILS draft regulation that will allow London to compete with Bermuda


The UK government is working on the regulatory framework for the trading of insurance-linked securities (ILS) in the UK which would allow London to compete with reinsurance hubs like Bermuda.

In order to enable ILS trading, the UK government has published for consultation two sets of draft regulations: the Risk Transformation Regulations 2017 and the Risk Transformation (Tax) Regulations.

Bermuda is the leading jurisdiction for the issuance of cat bonds, according to the Bermuda Regulatory Authority. ILS issued from Bermuda represents 69 percent ($18.4 billion of $26.5 billion) of total outstanding ILS capacity, the regulator said in a June 2016 report.

The UK could make a major contribution to the continued growth and development of the global ILS market with the right framework, the UK Government believes.

Huw Evans, director general of the Association of British Insurers, said: “The ABI welcomes the HM Treasury consultation on proposed regulatory framework for Insurance Linked Securities regulations and the PRA (Prudential Regulation Authority) and FCA (Financial Conduct Authority) consultation on their approach to the authorisation and supervision to develop a new competitive regime in the UK for ILS vehicles. It is essential that the UK’s approach to administrating the regime is equivalent to that of the jurisdictions with which it will be competing if the market is to flourish.”

Inga Beale, the chief executive of Lloyd’s, had previously told sister publication Intelligent Insurer that new UK regulation that would facilitate the issuance of insurance-linked securities (ILS) from vehicles based in the London Market will be critical to help London protect its status as a global hub for risk transfer.

Beale, in response to the UK government’s announcement on Nov.23, said: “It is clear that London should be competing in the ILS market which will bring considerable benefit to the London Market as a whole, so we welcome today’s announcement from the Government.

“ILS capital has been growing, particularly in global reinsurance, and the London Market has the expertise and talent to select the risk that it wants to invest in. We look forward to working with the government and the LMG (London Market Group) to ensure that this work can help London maintain its position as the leading global hub for reinsurance.”

Bermuda Re