News that the UK Government is working with regulators to allow insurance-linked securities (ILS) be issued from the UK, is a positive move in enhancing London’s position as a hub for alternative capital. This is particularly important as ILS is a growing source of capital for the global reinsurance industry, with this form of alternative capital providing around 12 per cent of its capital in 2015 and projected to double by 2018.
Of course it also means that selecting, pricing and tracking risks remain critical to defend underwriting profitability given the impact of the flood of capital on the premium rating environment.
The government has overruled regulators to open the way for London to become a hub for the $70bn insurance-linked security business, which is currently based mainly in offshore locations such as Bermuda and the Cayman Islands. Insurance-linked securities, which include catastrophe bonds, allow insurers to pass risk to investors who seek high returns.