The UK has begun the process for introducing a new insurance-linked securities (ILS) framework.
A government amendment to the Bank of England and Financial Services Bill has been tabled and seeks a power for the UK Treasury to make regulations facilitating and regulating ILS business.
The main focus of the power is the special purpose vehicles (SPVs) used in ILS transactions. If UK Parliament accepts the amendment, treasury ministers will be able to make regulations for any part of ILS activity.
The House of Lords considered the amendment on 11 November, the second day of the committee stage of the bill.
The introduction of the amendment follows the release of a report from Grant Thornton in October that predicted the UK is unlikely to become a centre for housing ILS business without significant regulatory changes.
The report pointed out that in the UK, SPVs and protected cell companies (PCCs)—two structures that are key components to an ILS marketplace—are not currently feasible. Primary legislation would be required to facilitate such a marketplace in the UK.
The report also argued that it would be necessary to design a regulatory process that can set up a new insurance vehicle in a time scale that makes the UK competitive with other domiciles, without compromising the regulatory objectives of the country’s financial regulators.
Malcolm Newman, chairman of the International Underwriting Association (LMG), commented: "This is very good news for our work in innovation and growth. London is a centre of excellence for global specialty reinsurance and insurance business, and we want to lead the world in terms of new products. “
“ILS is very much at the innovative end of the market and we want London to be the next big centre for this business. We are delighted that the government has worked so closely with the LMG to facilitate the creation of an onshore UK hub for the capital markets products and we look forward to further progress on implementing a new and competitive framework for ILS in 2016."
As part of the 2015 budget, chancellor George Osborne said that the government would work with the industry and regulators to develop competitive corporate and tax structures to allow ILS to be domiciled in the UK.
