The Isle of Man is hoping to benefit from the surge of interest in the alternative capital space after the island introduced new legislation designed to facilitate the formation of insurance linked securities (ILS) and catastrophe bonds.
It is not only ILS and catastrophe bonds that the Isle of Man hopes to welcome however, with the island’s new legislation also tailored to allow the formation of mortality bonds, reinsurance sidecars, industry loss warranties and other collateralised reinsurance instruments.
“We have been working and consulting closely with industry and the Insurance and Pensions Authority on introducing this legislation and already have enquiries in the pipeline,” said John Garland, head of corporate financial services with the Isle of Man Government’s department of economic development.
“We believe that our framework for insurance special purpose vehicles offers excellent features for potential users as well as the proportionate and focused legislation that we are renowned for.”
The so-called “alternative capital” market has grown substantially in recent years, with both investors and insurers alike supportive of the model. Indeed, the popularity of this market has detrimentally impacted the traditional reinsurance sector where pricing in classes such as property catastrophe has fallen.
That the ILS market is growing can be seen in figures from Swiss Re which show that 2014 was a record breaking year for the sector. New ILS issuance reached $8.29bn across 27 transactions in 2014, a slight increase on the previous year but crucially beating the previous record of $8.24bn which was set in 2007.
And there is an expectation that this niche segment of the re/insurance industry will continue to grow, and as such jurisdictions such as the Isle of Man are keen to get in on the act. Bermuda remains the key player in the alternative capital market, responsible for the formation of 36 special purpose insurers (SPIs) in 2014. Next on the list is the Cayman Islands which was responsible for the formation of just four SPIs last year.
The Isle of Man is not the only offshore jurisdiction looking to establish a foothold in the ILS space though, with Gibraltar also introducing legislation last year as it seeks to grow its own presence in the sector. As Michael Ashton, senior finance centre executive for Gibraltar Finance, told Reactions late last year, the island is one the verge of becoming an attractive and credible alternative for European companies looking to conduct ILS transactions.
Another selling point that Ashton was keen to point out is the speed to market that Gibraltar offers both investors and cedants, and Isle of Man believes its own insurance SPV regulation offers similar benefits.
“This new framework promises to open up new business streams for the Isle of Man and provide welcome competition in this area, particularly given our close proximity to London.
“We can offer speed to market with the licencing process designed to take just five days following receipt of fully prepared applications. We can also offer a highly competitive fee structure – that may be fixed for the lifetime of any insurance SPV with a determinable lifespan - along with simplified regulatory requirements, including returns.”
Within Europe, Ireland is the leading player when it comes to ILS business. The country has seen several large ILS instruments established within its borders in recent years such as the Axa Global P&C sponsored Calypso Capital II.
That catastrophe bond was placed in 2013 and provides the French insurer with €350m of protection against extreme European windstorms in Belgium, Denmark, France, Germany, Ireland, Luxembourg, the Netherlands, Norway, Sweden, Switzerland and the UK on a weighted Perils index basis.