UK insurance special purpose vehicle (ISPV)

To issue a catastrophe bond or set up a sidecar, one needs a vehicle that takes the insurer's risk, collects investors' capital and holds it as collateral. These vehicles were mostly domiciled in Bermuda, the Cayman Islands or Guernsey, whose regulators approve quickly and cheaply. The United Kingdom, to keep in London an activity linked to its insurance market, adopted in 2017 the Risk Transformation Regulations, which create the insurance special purpose vehicle. It can be set up as a protected cell structure, each cell carrying a transaction ring-fenced from the others. Authorization is shared between the prudential and conduct regulators. The vehicle must be fully funded: its liabilities cannot exceed the assets contributed by investors. Take-up has been slow, owing to long approval times and tax treatment seen as less clear than Bermuda's. UK authorities have launched several reforms to speed up review and simplify requirements. The case illustrates a reality of the insurance-linked securities market: its location depends less on available law than on approval speed and investor habit.