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'UK ILS regime gives broad range of options to cedants'

By Katherine Coates, Clifford Chance

The UK regulator has been very responsive in dealing with recent ILS transactions

The UK’s new insurance-linked securities (ILS) regime gives cedants a broad range of risk-transfer option through a variety of structures. It enables cedants to transfer risk to institutional investors and/or the capital markets through catastrophe bonds and collateralised reinsurance products, structures which are currently most commonly used in offshore jurisdictions. But the regime also provides the operational flexibility for the development of new structures.

Earlier this year the new UK ILS regime introduced an onshore Solvency II-compliant regime, which makes the UK a more attractive domicile for ILS, competing with the more established offshore ILS markets such as Bermuda, Guernsey and Gibraltar.

The UK regime’s Solvency II compliance and the “fully funded” requirement on vehicles are important safeguards for cedants. The regime is also broad and flexible enough to allow cedants to transfer risk using indemnity and non-indemnity triggers under reinsurance and risk transfer contracts.

Cedants looking to establish a UK vehicle can also take advantage of the relatively straightforward regulatory authorisation process in the UK.

The Prudential Regulation Authority and the Financial Conduct Authority have been responsive in the first ILS transactions in the UK market on which we have advised, with engagement in pre-application discussions assisting in the processing of ISPV applications within six to eight weeks on a fast-track basis. This was also our experience when advising Scor on its successful sponsoring of the first UK catastrophe bond, issued by Atlas Capital UK 2018.

Once a multi-use PPC vehicle is in place, the new UK regulations should permit adaptation of the vehicle for further transactions quite quickly and easily, and allow the vehicle to issue ILS to fund a series of separate risk transfer agreements with varying risk profiles.

 

Katherine Coates is a partner at Clifford Chance

 


Tune in at 11.30 am London time on July 12 for Insurance Day’s exclusive webinar, in association with Clifford Chance, on the new opportunities to be found in the insurance-linked securities market in 2018. In this panel session we will discuss innovation in alternative capital, the status of London as the world’s newest ILS hub, and the market’s reaction after HIM. The speakers on the one-hour webinar are:

  • Katherine Coates, partner, Clifford Chance
  • Jean-Louis Monnier, global co-head of ILS, Swiss Re
  • Des Potter, head of GC Securities, Guy Carpenter
  • Malcolm Newman, managing director, EMEA hub, Scor
  • Rob Proctor, founder, Securis

Go to www.insuranceday.com to register.

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