UK insurance linked securities framework delayed until after election

A “source close to the process” confirmed the delay to reinsurance news service Artemis. A government consultation on draft regulations closed in January, and a final version was due to be published around Easter, according to Artemis.

A general election will take place on 8 June, meaning that a new government will not be able to consider the regulations until later that month at the earliest. This makes it “very unlikely” that the UK will be ready to act as an ILS domicile by autumn, as originally planned, according to Artemis.

“Given the level of work that has gone in to putting the ILS framework in place, all of the stakeholders will be hoping that its finalisation will progress quickly after a new government is elected,” said insurance law expert Nick Bradley of Pinsent Masons, the law firm behind Out-Law.com.

“Other markets will not wait for the UK and so let’s hope that this delay will be short and further progress won’t be hampered by political uncertainty. We will have to wait to see what the reported position is later in June,” he said.

ILS arrangements offer insurers an alternative to traditional reinsurance as a form of risk mitigation. An ILS arrangement enables an insurer to transfer large and complex risks, such as catastrophic risks arising from natural disasters, to the capital markets rather than a reinsurer. The use of ILS has grown “very significantly” in recent years to around $70 billion in value, or about 12% of the overall reinsurance market, according to last year’s Treasury consultation on the UK proposals.

The UK government first announced its intention to develop a competitive corporate, tax and regulatory framework for ILS vehicles as part of the 2015 Budget. The UK’s financial regulators have been developing plans to authorise and supervise new ‘insurance special purpose vehicles’ (ISPVs) through which a new regulated activity of ‘insurance risk transformation’ will take place as part of the wider plans.