EU and UK regulation of insurance-linked securities
EU and UK regulation of insurance-linked securities

The following Banking & Finance practice note provides comprehensive and up to date legal information covering:

  • EU and UK regulation of insurance-linked securities
  • What are insurance-linked securities?
  • Use of SPVs
  • Outline of EU and UK regulatory regime for ILS
  • Definition of SPV and MSPV under Solvency II
  • Conditions for authorisation of SPVs under Solvency II
  • Mandatory contract conditions for ILS transactions under Solvency II
  • Fully funded
  • Effective transfer of risk
  • Rights of the providers of debt or financing mechanisms
  • More...

BREXIT: As of 31 January 2020, the UK is no longer an EU Member State, but has entered an implementation period during which it continues to be treated by the EU as a Member State for many purposes. As a third country, the UK can no longer participate in the EU’s political institutions, agencies, offices, bodies and governance structures (except to the limited extent agreed), but the UK must continue to adhere to its obligations under EU law (including EU treaties, legislation, principles and international agreements) and submit to the continuing jurisdiction of the Court of Justice of the European Union in accordance with the transitional arrangements in Part 4 of the Withdrawal Agreement. For further reading, see: Brexit—introduction to the Withdrawal Agreement. This has an impact on this Practice Note. For guidance, see Practice Note: Brexit—impact on finance transactions—Brexit planning and impact—financial services, Brexit—impact on finance transactions—Key issues for securitisation transactions and Brexit—impact on finance transactions—Derivatives and debt capital markets transactions—key SIs.

What are insurance-linked securities?

Insurance-linked securities (ILS) are a form of risk management for insurance and reinsurance firms.

Insurers routinely manage their exposure to risk by entering into an arrangement in which:

  1. the insurer retains its direct liability to its policy holders, but

  2. another firm

    1. receives amounts corresponding to part of the premia paid by policy holders to the insurer, and

    2. is liable

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