U.K. ILS Regulations. IRLA Breakfast Briefing, December 8, Andy Palmer Swiss Re Capital Markets

Similar documents
Alternative Risk Markets

FCA Statement authorising and supervising insurance special purpose vehicles

Insurance-linked securities: The new UK regime Theresa Chew and Adam Levitt

Swiss Re investors and media meeting

Application for Authorisation

Swiss Re Cat Bond Indices Methodology

The development of complementary insurance capacity through Insurance Linked Securities (ILS)

ILS MARKET UPDATE. WCMA Panel: London Market Group's ILS Initiative WILLIS CAPITAL MARKETS & ADVISORY

Schroders Insurance-Linked Securities

Alternative Risk Transfer Capital Markets Update

Insurance-linked securities glossary

Multi-arrangement Insurance Special Purpose Vehicle (MISPV) New Risk Assumption Notification Form

Supervisory Statement SS40/15 Solvency II: reporting and public disclosure - options provided to supervisory authorities

Securely managed insurance solutions

Using Reinsurance to Optimise the Solvency Position in an Insurance Company

RESPONSE TO HM TREASURY OPEN CONSULTATION: REGULATIONS IMPLEMENTING A NEW REGULATORY AND TAX FRAMEWORK FOR INSURANCE LINKED SECURITIES

Actuarial versus Financial Engineering

Goldman Sachs 18 th Annual European Financials Conference. Edouard Schmid, Head Property & Specialty Reinsurance Madrid, 10 June 2014

Securitisations for Life Insurers

SPECIAL PURPOSE INSURERS - GUIDANCE NOTE

Merrill Lynch Banking & Insurance CEO Conference 2006

Policy Statement PS1/18 Strengthening individual accountability in insurance: optimisations to the SIMR. February 2018

The Bermuda Stock Exchange

Insurance and Pensions Sector Report

Allianz Re. Company Presentation. May Understanding Risk Creating Value

EEA Life Settlements Fund PCC Limited

Analysts conference call 8 May 2007

INSURANCE-LINKED SECURITIES

NAIC CIPR Spring Event on Pandemics

A pioneer in ILS solutions

Irish Funds position on the Commission s proposal for reforming the European System of Financial Supervision 15 January 2018

SECOND QUARTER 2015 results

Consultation Paper CP10/18 Solvency II: Updates to internal model output reporting

Insurance-Linked Securities in the life industry

Managing the capital of a re/insurance group today

Mutuality and with-profits funds: a way forward

BERMUDA MONETARY AUTHORITY

GLOSSARY. Part. Links

Swiss Re s differentiation drives financial performance

Deposits Capability Transformation at The Royal Bank of Scotland

Navigating Brexit Breakfast Briefing Insurance Cells In Malta

new business seize the potential H&M GROUP CAPITAL MARKETS DAY 2018

UBS Swiss Equity Conference

Insurance industry needs to respond proactively to changing market dynamics in order to benefit from promising opportunities

Re: Consultation Paper on Bermuda Solvency Capital Requirement Update Proposal, November 2016

Policy Statement PS16/17 Dealing with a market turning event in the general insurance sector. July 2017

Overview on ILS; NatCat exposure. Juergen Graeber, Member of the Executive Board/COO non-life

Underwriting comes first. Effectively balance risk and return. Operate nimbly through the cycle. Analyst Presentation Q3 2017

Hurricane Andrew (1992) Photo credit: FEMA

Policy Statement PS9/19 Solvency II: Group own fund availability. March 2019

Flash Economics. One concern in the United States: Commercial real estate. 07 October

Guidance on the Approval and Supervision of Special Purpose Vehicles under Solvency II

Sam Woods Deputy Governor, Prudential Regulation CEO, Prudential Regulation Authority

Consultation Paper CP6/18 Credit risk mitigation: Eligibility of guarantees as unfunded credit protection

Creating the future. Investors and Media meeting Monte Carlo, 9 September 2013

BERMUDA MONETARY AUTHORITY

Longevity risk in society

Capital allocation at the core of our strategy David Cole Group Chief Financial Officer

Dual Directional Notes Based Upon the SPDR S&P 500 ETF Trust

WHY IRELAND FOR MANAGEMENT COMPANIES AND INVESTMENT FIRMS. irishfunds.ie WHY IRELAND - PAGE 1

CEIOPS-DOC August (former Consultation Paper no. 81)

Supervisory Statement SS12/15 Solvency II: Lloyd s. March Appendix 2.12

Consultation Paper CP9/18 Solvency II: Internal models modelling of the volatility adjustment

UBS-ETT Linked to S&P 400 Midcap Total Return Index Issued by UBS AG, London Branch

BERMUDA MONETARY AUTHORITY

Q Catastrophe Bond & ILS Market Report

Consultation Paper CP12/18 Securitisation: The new EU framework and Significant Risk Transfer

Consultation Paper CP24/17 Solvency II: Internal models - modelling of the matching adjustment

Why Use Smart Beta in DC?

Consultation Paper CP2/18 Changes in insurance reporting requirements

Coupon Barrier Auto-Call Notes Based Upon the Shares of ishares iboxx $ High Yield Corporate Bond ETF

DUBAI & UAE. A Global Hub

INSURANCE LINKED SECURITIES INSURANCE LINKED. Securities. Guide to listing on the Cayman Islands Stock Exchange

Liric Duurzaam September 2023

Swiss Re s performance and strategy

Supervisory Statement SS5/17 Dealing with a market turning event in the general insurance sector. July 2017

Debt Investor Presentation

Supervisory Statement SS44/15 Solvency II: third-country insurance and pure reinsurance branches. November 2015

Consultation Paper CP1/18 Resolution planning: MREL reporting

Merrill Lynch Banking & Insurance CEO Conference

CAPITAL MARKETS UNION CMU Mid-Term Review Action Plan

An introduction. May 2018

EEA Life Settlements Fund PCC Limited

IN THE KNOW. Transaction Costs and What They Mean

Put Warrant Linked to DAX Issued by UBS AG, London Branch

THE CITY OF LONDON LAW SOCIETY'S FINANCIAL LAW COMMITTEE

Supervisory Statement SS6/16 Recalculation of the transitional measure on technical provisions under Solvency II

Financial Policy Committee Statement from its policy meeting, 12 March 2018

Insurance Linked Securities Chris Parry Aon Benfield Solutions

UBS ETC on UBS Bloomberg CMCI WTI Crude Oil CHF Hedged Index (*) Currency risk in the Underlying is extensively but not perfectly hedged

Open End PERLES Linked to ROBO Global Disruptive Technology Total Return Index (USD)* Issued by UBS AG, London Branch

Consultation Paper CP29/17 International banks: the Prudential Regulation Authority s approach to branch authorisation and supervision

10.00% p.a. USD Kick-In GOAL Linked to Celgene With Early Redemption Feature Issued by UBS AG, London Branch

Q Catastrophe Bond & ILS Market Report

Supervisory Statement SS10/18 Securitisation: General requirements and capital framework. November 2018

Consultation Paper CP35/16 Whistleblowing in UK branches

UBS Swiss Alpine Summit

Mr. Chairman, Deputies and Senators - thank you for the invitation to participate in

Group strategy update. Michel M. Liès, Group Chief Executive Officer Investors' Day, Zurich, 24 June 2013

Cheuvreux Spring European Large Cap Conference

Transcription:

U.K. ILS Regulations IRLA Breakfast Briefing, December 8, 2017 Andy Palmer Swiss Re Capital Markets

Disclaimer Swiss Re Capital Markets Limited ( SRCML ) (Financial Services Register Number 187863, VAT Registration number 244797524) of 30 St Mary Axe, London, EC3A 8EP is a company authorised and regulated in the conduct of its investment business in the U.K. by the Financial Conduct Authority and is entered in the Financial Services register. The Financial Conduct Authority website http://www.fca.org.uk/ contains a wide range of information of specific relevance to U.K. customers and provides access to the Financial Services register. This information is not intended for retail clients. Persons dealing with SRCML outside the United Kingdom are not covered by all the rules and regulations made for the protection of investors in the United Kingdom and may not have the right to claim through the United Kingdom s Financial Services Compensation Scheme. This document is confidential and proprietary to us and is solely for your use and is not intended for any further dissemination. This document remains our property and must be returned to us on request and any copies you have made must be destroyed. Nothing in this document should be construed as legal, tax or investment advice. Unless otherwise agreed in writing, SRCML and its affiliates ( Swiss Re ) are not acting as your financial adviser or fiduciary. This document is for information purposes only and does not constitute an invitation or inducement or an offer or commitment, a solicitation of an offer or commitment, or any advice or recommendation, to conclude any transaction. While information herein has been obtained from sources believed to be reliable, we do not represent it to be accurate or complete. The information contained herein includes illustrations, estimates and projections and involves significant elements of subjective judgment, assumptions and analysis. Any views or opinions (including illustrations, estimates, statements or forecasts) constitute our judgment as of the date indicated and are subject to change without notice. No representation is made as to the accuracy of such illustrations, estimates or projections or that all assumptions relating to them have been considered or stated or that such projections or returns will be realised. The returns or performance results may be lower than estimated herein. The information contained herein does not purport to contain all of the information that may be required to evaluate such solutions and you are encouraged to conduct independent analysis of the data referred to herein. We do not undertake to update this document. Before you enter into any transaction, you should ensure that you fully understand the potential risks and rewards of that transaction and you should consult with such advisers as you deem necessary to assist you in making these determinations. Neither of us should rely on any representation or undertaking inconsistent with the above paragraphs. Notwithstanding the confidential nature of this document and its contents, we may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the transaction(s) contemplated herein and all materials of any kind that are provided to you relating to such tax treatment and tax structure. However, any such information relating to the tax treatment and tax structure of the transaction(s) shall be kept confidential to the extent necessary to comply with any applicable federal or state securities laws. SRCML may not be authorised to arrange insurance or reinsurance products in your jurisdiction, and if any such solutions are required an appropriate entity within the Swiss Re group would arrange or provide such product. 2

Agenda 01 Introduction to the ILS Market 02 The U.K. ILS Regulations (Risk Transformation Regulations 2017) 03 Opportunities for the London Market 04 The Challenges 3

01 Introduction to the ILS Market

Introduction to the ILS Market The Role of Swiss Re and Swiss Re Capital Markets Sponsoring Swiss Re Capital Markets is a leader in the insurance-linked securities market, having underwritten over USD 30bn in cat bonds since its inception in the late 1990s Swiss Re is the largest sponsor of cat bonds historically with more than USD 8bn issued Transforming Structuring Distribution Secondary Trading Investing Swiss Re Cat Bond Indices 5

Introduction to the ILS Market Swiss Re: A History of Market Innovation and Cat Bond Firsts 1997 First Industry Index Cat Bond 1997 First Parametric Index Cat Bond and First 10 Year Term Cat Bond 2003 First Mortality Risk Life Securitisation 2010 First Longevity Cat Bond 2012 First Cat Bond to Combine Two Different Sponsors Risks 2012 First Combined Nat Cat and Life Cat Bond 2013 First Combined Reinsurance / Insurance Trigger 2016 Introduction of All-Natural Perils 2017 Development of First Pandemic Transaction for the Developing World 6

Introduction to the ILS Market Why does the ILS Market Exist? ILS provides investors with a source of returns with low correlation to financial markets, representing an opportunity for diversification Dedicated Investors: Includes dedicated cat funds, client-facing sidecars Multi-Strategy: Includes asset managers, hedge funds Real Money: Includes insurers, endowments, pension funds, mutual funds, banks 7

Introduction to the ILS Market Why does the ILS Market Exist? 2016 U.S. Pension Plan Assets (AUM): USD 25.1 trillion 1 2016 Reinsurance capital: USD 390 billion 2 Of which: Traditional reinsurance: 81% Alternative capital: 19% 1 Source: OECD Pension Markets in Focus, 2017, data as of 31/12/2016 2 Source: Swiss Re Institute, Swiss Re Sigma No 2/2017 8

Introduction to the ILS Market A Potted History 2017 Largest ever issuance of cat bonds 2015 Rated reinsurance vehicles 1992-2001 Bermuda Start-ups 1996 Cat Bonds Late 1990s Dedicated ILS Funds 2014 Hedge Fund Re 2013 Sidecars v2 2011 Collateralised Re takes off 2005 Sidecars v1 9

Introduction to the ILS Market Market Segmentation and Size Total ILS capacity being provided directly by the capital markets is estimated to be nearly $80 billion as of mid-2017 USD bn 295 314 347 370 397 381 390 406 25 28 34 46 62 68 73 79 2010 2011 2012 2013 2014 2015 2016 1H17 Collateralised re, sidecar and ILW Cat bonds Traditional capital Source: Swiss Re Institute and Swiss Re Capital Markets, November 2017 10

Introduction to the ILS Market Where are we today? The ILS market operates where there are relatively low barriers to entry: easy-to-model perils, relatively high cost of capital, short tail Historical Peril Split Historical Non-Cat Peril Split USD 84bn USD 6.8bn Source: Swiss Re Capital Markets, November 2017 144A Cat Bonds only Nat Cat Others Extreme Mortality Extreme Morbidity Auto Event Cancellation Industrial Accident Pandemic Credit Reinsurance Longevity Divergence 11

Introduction to the ILS Market Expanding Access to Other Lines of Business Run-off Engineering Product Liability Longevity Agro Aviation & Space Other Nat Cat Offshore Marine Manmade Property Peak Peril Nat Cat Extreme Mortality 12

02 The U.K. ILS Regulations (Risk Transformation Regulations 2017)

The U.K. ILS Regulations Importance of the London Market for the U.K. economy The London market contributes substantially to the U.K. economy, representing around 13% of the U.K. financial services sector s direct GDP contribution GBP bn 11.9 42.4 13.4 17.1 Direct GDP contribution Indirect GDP contribution Induced GDP contribution Total GDP contribution Source: London Matters, 2017, data as of 31/12/2015 14

The U.K. ILS Regulations The London Market s Current Size The London market needs to stay ahead of the curve in order to continue growing Market Size Growth Rate Singapore USD 8bn +4.0% Switzerland USD 31bn +0.6% Bermuda USD 39bn +1.0% London USD 91bn -0.3% Source: London Matters, 2017, Gross Written Premium, commercial insurance and reinsurance in 2015, USD bn 15

The U.K. ILS Regulations Overview The government is committed to working with the insurance industry to help strengthen the sector s contribution to the U.K. economy and enhance the U.K. s position as a leader in a truly global industry Regulatory Framework Creation of a regime for establishing Protected Cell Companies ( PCC ) Supervisory Framework Dual supervision regime with PRA and FCA Tax Framework Corporate tax exemption Withholding tax exemption for foreign investors Source: HM Treasury, Regulations implementing a new regulatory and tax framework for Insurance-Linked Securities: response to the consultation 16

The U.K. ILS Regulations Timeline Establishment of the ILS taskforce First Consultation Second round of Consultations Conversion into law 2015 Q1 Q2 Q3 Q4 2016 Q1 Q2 Q3 Q4 2017 Q1 Q2 Q3 Q4 March 18, 2015: As part of Budget 2015, plans are announced to transform London into a leading hub for global ILS business November 29, 2017: Adoption into law of the Risk Transformation Regulations 2017 17

The U.K. ILS Regulations Typical ILS Structure Refresher Sponsor Risk Transfer Contract Premium Payout SPV / PCC Collateral Trust Securities Proceeds Interest Payment Return of Remaining Principal Investors Investments Investment Return Collateral 18

The U.K. ILS Regulations Regulatory Framework A new regulated activity of Insurance Risk Transformation has been introduced into the Financial Services and Markets Act (2000) Cedant 1 PCC Core (MISPV) Cell A e.g. Notes, Pref Shares Cell B Qualified Investors Cedant 2 Cell C Cedant 3 Cell D Source: The Risk Transformation Regulations 2017 An ISPV which takes on more than one contract for risk transfer from one or more cedants is referred to as a multi-arrangement insurance special purpose vehicle (MISPV). (PS26/17, PRA) 19

The U.K. ILS Regulations Supervisory Framework Application Process (M)ISPVs are subject to authorisation and supervision by the PRA and the FCA Pre-application discussions with early feedback (M)ISPV Application Form Application Form for individuals Documentation Requirements Scope of Permission Ongoing cooperation with EEA cedants Supervisory Authorities For straightforward proposals supported by good quality documentation, the PRA envisages a 6-8 weeks period to reach a determination Source: Supervisory Statement SS8/17, PRA 20

The UK ILS Regulations Supervisory Framework Requirements of ISPVs Ongoing supervision by PRA and FCA is proportionate and risk-based Senior Insurance Managers Regime (SIMR) requirement Fit and proper requirements for shareholders or members with a qualifying holding (10% or more) Fully funded requirement according to Solvency II Source: Supervisory Statement SS8/17, PRA 21

The U.K. ILS Regulations Tax Framework The government recognised the need to be internationally competitive with a tax framework that recognises the nature of insurance risk transformation No corporation tax is applied to the insurance risk transformation activity of qualifying transformer vehicles No withholding tax on payments of interest or dividends to investors Source: The Risk Transformation (Tax) Regulations 2017 22

03 Opportunities for the London Market

Opportunities for the London Market Bringing the ILS market to the Next Step of Innovation and Growth London is the biggest global centre for insurance risk, with USD 66.7bn of gross premium written and USD 24bn managed by London in 2015 London offers a unique ecosystem of financial services and is one of the most attractive financial centres globally The London market employs 35,000 people in London, representing 13% of those employed in the City Source: London Matters, 2017 24

Opportunities for the London Market Attracting New Talent and Increasing Diversity Innovation can enhance the attraction of new talent to the industry, with the potential to increase diversity in the workforce 2% 3% 6% 89% UK EU Non-EU 27% 15% 20% 35% Below 30 30-40 41-50 51-60 Above 60 Percentage of U.K. and non-u.k. employees in the London Market Age brackets represented in the London Market Source: London Matters, 2017 25

Opportunities for the London Market The Protection Gap London expertise needs to be leveraged in order to help close the protection gap both in mature and developing markets ILS can play a significant role in this 450 400 350 300 250 200 150 100 50 0 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Source: Swiss Re Institute, Swiss Re Sigma No 2/2017 Insured losses Not insured 10-year moving average insured losses 10-year moving average total economic losses 26

04 The Challenges

The Challenges Potential Hurdles London is not a tested ILS platform some deals will need to go through the system in order to increase efficiency High requirements in terms of documentation and amount of effort necessary for incorporation Slower (initially) and more costly ancillary services, with expertise in the field to be developed Requirement to be fully funded according to Solvency II Lack of speed and certainty in the approval process, fundamental for competing with other jurisdictions 28

Q&A

Contact Information Contact: Email: Andy Palmer Deputy Head of ILS Structuring Swiss Re Capital Markets, London Andy_Palmer@swissre.com