The government has made significant steps towards enabling the UK to become a centre for insurance-linked securities (ILS) business, but the devil will be in the detail.
The recent news that a Government amendment to the Bank of England and Financial Services Bill has been tabled, that seeks a power for Treasury to make regulations facilitating and regulating ILS business, was another welcome development in bringing this dynamic segment of the industry to London.
The UK currently lacks the corporate structures most efficient for setting up insurance special purpose vehicles (SPVs), which will form a critical part of the ILS arrangement, and the main focus of the power will address this. This is a positive development but a number of other hurdles still need to be overcome, not least making the UK tax regime more attractive to ILS investors. The regulator will also have a number of concerns which they will want to see addressed but the key aspect of regulation will be establishing a process which can set up a new insurance vehicle in a time scale that makes the UK competitive with other domiciles.
As these issues are worked through, we may see an interim role for London as an advisory or legal hub to nearby offshore domiciles, such as Malta and Gibraltar, similar to the role New York plays in supporting the ILS market in Bermuda.