Lloyd’s managing agents call for greater ILS use

City of London

Some 80% of Lloyd’s managing agents would like to see insurance-linked securities become a permanent fixture in the reinsurance and insurance market.

The Lloyd’s Market Association polled senior executives from 25 managing agencies and found that support for ILS structures and ILS capital was high, with more than two-thirds see a potential use for the new UK ILS framework in the next 12 months and 60% would like to see Lloyd’s Central Fund diversify its sources of capital through ILS.

In March this year, Lloyd’s chief financial officer John Parry said Lloyd’s was positive on ILS cover and could be used to back the Lloyd’s Central Fund as early as next year.

Despite the uptick from the corporation, the LMA’s poll saw 36% of respondents believe Lloyd’s framework will need to change to accommodate more use of ILS.

In addition, 88% would like to see London leverage its underwriting expertise to gain access to currently uninsured risks using ILS capital and 100% of executives believe that ILS transactions will widen to cover more risks, including cyber and legacy business, in the next three years.

Ken Curtis, LMA director of finance and risk, said: “This research shows that market participants are extremely supportive of increasing the use of ILS generally, and doing so at Lloyd’s in particular. The new UK framework has already been tested by a Lloyd’s syndicate, and the market will explore ways to make future transactions even simpler and more efficient.”

The ILS and catastrophe bond markets have been a hot topic for the London market since March 2015 when the then Chancellor George Osborne announced that the government would seek to develop a corporate and tax structure for ILS in the UK.

In November last year, the Prudential Regulation Authority published final rules setting out how it will authorise and supervise insurance special purpose vehicles, which will be used to issue insurance linked securities in the UK.

With the likes of Bermuda, Zurich and Guernsey having already carved themselves a niche as the preferred locations for ILS activity, the UK government responded with its own framework so that ILS business can be carried out in the UK.

The introduction of the UK’s ILS framework has been warmly welcomed by Lloyd’s and the London market, who view it as something that will make London more competitive, taking ILS business away from the established hubs of Bermuda, Cayman, Germany, Guernsey and Ireland.

However, in an interview with Post in June Hiscox CEO Bronek Masojoda cast doubt on the UK regulator’s ability to make good on its promise to create a flexible framework for ILS business in London.

Masojada said he is concerned that the regulations have come too late for the UK to be a meaningful player in the market and cast doubt that the watchdog will make good on its promise to take a flexible approach to SPVs and to those insurers wishing to engage in ILS.

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