The Isle of Man Insurance and Pensions Authority has recently brought into effect its regulatory framework for Insurance Special Purpose Vehicles (“ISPVs”), which has been developed in close consultation with industry and the Isle of Man’s Department of Economic Development.
The legislation enables Isle of Man firms to facilitate Insurance Linked Securities (ILS) and similar transactions including catastrophe bonds.
John Garland, Head of Corporate Financial Services with the Isle of Man Government's Department of Economic Development said:
"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. We believe that our framework for ISPVs offers excellent features for potential users as well as the proportionate and focused legislation that we are renowned for.
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 5 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 ISPV with a determinable lifespan - along with simplified regulatory requirements, including returns.
I am confident that our framework will prove of great interest to potential users in this specialist area who want to place their business in a highly respected and responsible international finance centre with a long track record of attracting high quality insurance business from around the world."
From 5th March 2015 ISPVs represent a new specialist class of (re)insurer for the Island which is designed to facilitate Insurance Linked Securities and other collateralised (re)insurance transactions between sophisticated parties.
Insurance Special Purpose Vehicles (ISPVs)
Specifically, the regulations create a framework for the purpose of giving effect to transactions commonly referred to as Insurance Linked Securities such as Catastrophe Bonds, Mortality Bonds, Industry Loss Warranties, Sidecars and other collateralised insurance and reinsurance structures.
The framework facilitates such transactions by using ISPVs which are insurance or reinsurance companies specifically licensed by the Authority for that purpose.
What are the main differences between an ISPV and a conventional (re)insurer?
An ISPV must only have (re)insureds and investors which are suitably sophisticated for this specialist form of business. Prospective participants should refer to the ISPV regulations and guidance for further information on qualifying criteria.
In addition, an ISPV must be fully funded by way of contractual arrangements with its participants such that the ISPV’s liability to its participants is limited to its available assets.
The resulting reduced risk to vulnerable stakeholders and reduced risk of insolvency is reflected in the simplified regulatory requirements and lower fees applicable to ISPVs.
The ISPV application process is designed to facilitate fast licensing, with a target of 5 days or less from a fully completed application.
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