UK: Insurance Linked Securities: UK Government Consultation

Further to discussions between the London insurance market and HM Treasury since the publication in November 2014 of the "London Matters" report on the competitive position of the London Insurance Market, the UK Government is consulting on the development of a legal framework for the authorisation and supervision, corporate structure and taxation of vehicles designed to attract insurance linked securities (ILS) business to the UK.

The consultation document (published on 1 March 2016) sets out the Government's initial thinking in these areas and invites the views of stakeholders on a number of key questions. The period for submitting responses runs until 29 April 2016; the Government aims to produce draft regulations for a new ILS framework later this year.

This note briefly highlights some key points concerning the parameters of the consultation and the issues being consulted on.

Authorisation and supervision

  • The proposals at this stage have been developed with a focus on the two most common forms of ILS deal, collateralised reinsurance and CAT bonds. Views are sought as to whether this is the right initial focus and what other forms of ILS might be focused on.
  • The framework for authorisation and supervision of SPVs under Solvency II (S2 Requirements) forms the basis of the proposals in respect of insurance SPVs (ISPVs), including the requirements that:
  1. the ISPV must be fully funded at all times; and
  2. the rights of investors must be subordinated to the ISPV's obligations to cedants.
  • Investment in ILS securities would be restricted to knowledgeable and sophisticated investors. Views are sought on whether ILS investment should be restricted to sophisticated investors and whether a secondary trading platform will be needed to facilitate growth in UK ILS business.
  • Governance: a minimum of three board members for a UK ISPV are envisaged (chairman, chief executive and chief finance officer; the necessity for a chief actuary is being consulted on).
  • A period of 6 – 8 weeks is envisaged for authorisation of an ISPV (in the case of a relatively standard form of ILS transaction), from submission of a formal application (following optional pre-application engagement and submission of additional documentation intended to facilitate an accelerated decision on an application, including possible independent legal opinions on ISPV compliance with the S2 Requirements). Views are sought on the envisaged 6 – 8 week timeline for authorisation (and on a number of questions concerning the application process).
  • The Prudential Regulation Authority (PRA) aims to produce a Supervisory Statement on the authorisation process for ISPVs in the first half of 2016.

Corporate structure

  • With the exception of two questions about ownership arrangements, the proposals and questions in this section of the document all relate to the Government's proposal to amend UK company and insolvency laws to allow for the creation of 'protected cell companies' (PCCs) for use in ILS deals where it is intended that an ISPV will enter into multiple collateralised reinsurance transactions (an ISPV of this kind is referred to in the consultation paper as a multi-arrangement ISPV, or mISPV).
  • As in other jurisdictions whose laws permit similar structures, a PCC structure would involve the legal segregation within one company of pools of assets and liabilities. This would allow an individual collateralised reinsurance deal to be allocated to its own cell, such that if a PCC undertook several deals and the collateral supporting one deal were insufficient, none of the other deals would be affected (it would also allow for the cell allocated to the 'failed' deal to be dissolved without affecting any other cells or the PCC itself).
  • The key advantages of a PCC regime are savings in time and administrative expense as a result of not having to establish a new ISPV for each separate collateralised reinsurance contract. These efficiencies are most marked in respect of the regulatory authorisation process; it is proposed that once an mISPV had been authorised (Stage 1), additional cells (for individual deals) could be formed by way of board resolution and an individual deal could be entered into on a 'notification-and-non-objection' basis shortly after notifying the PRA of the proposed deal (Stage 2). The Government is consulting on the length of the notification period, and on whether the market thinks that significant changes in the intended use of an mISPV could occur following Stage 1 such that more flexibility might be needed at Stage 2.
  • A range of other issues are being consulted on regarding the proposed introduction of an ILS PCC regime, including in respect of a number of points concerning internal structure; disclosure of PCC status in dealings with third parties; allocation of non-contractual liabilities; effective segregation of assets and liabilities within PCCs; contracts between constituent parts of a PCC; insolvency arrangements in respect of individual cells and the core of a PCC; and cross border insolvency issues.


  • The document notes that in view of the 'risk transforming' nature of ILS deals and the desire to attract ISPVs to locate in the UK, it will be necessary to design a tax treatment for UK ISPVs similar to that provided in offshore jurisdictions (i.e. no or minimal tax within the ISPV, with tax payable by investors in the jurisdictions where they are located on their share of the vehicle's income).
  • Accordingly, it is proposed that equity-backed UK ISPVs (or cells within mISPVs) would be exempt from corporation tax on profits arising within the vehicle, but that their investors would be subject to tax on the distributions they receive. The possibility of a withholding tax being levied on distributions paid to non-UK investors is raised; however it is recognised that eliminating withholding tax has been a key issue raised by stakeholders, and views are sought on the extent to which such a withholding tax could undermine the competitive value of corporation tax exemption for the ISPV.
  • In the case of debt-backed ISPVs, it is noted that under existing rules, interest payments to non-UK investors are subject to withholding tax and that because of linkages with other ongoing projects, updating the existing rules in this regard within the desired timeframe "would be challenging". In view of this, the Government suggests that the 'tax exemption approach' put forward for equity-backed ISPVs could also be suitable for debt-backed deals and invites views on this suggestion (and on any barriers there may be to funds being raised for collateralised reinsurance deals through debt instruments).

The London Market Group, the senior market-wide body championing the modernisation agenda in the London insurance market, has welcomed the consultation and is encouraging all interested parties to respond with their views in the hope that a bespoke framework for ILS in the UK will become law by the end of 2016.

Insurance Linked Securities: UK Government Consultation

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.