LONDON'S ILS PLANS PROGRESS AS TREASURY BEGINS TO DRAFT LEGISLATION

Efforts to make London an insurance-linked securities (ILS) hub have moved forward, with HM Treasury in the process of drawing up proposals for the structures needed to support ILS activity, according to a report in Insurance Day. The report said officials at the Treasury are understood to be drafting legislation to create the protected cell structures needed for ILS vehicles, which are not permitted under UK company law at present. Treasury officials are also looking at the changes to the tax laws needed to encourage pension funds and other capital markets investors to participate in UK-based ILS structures. The draft proposals will be presented to the re/insurance industry’s ILS taskforce, set up by the London Market Group (LMG), for comment. While creating the necessary legal structures is vital if London is to attract ILS business, the question of how investors are taxed is arguably the most critical issue. Malcolm Newman, chief executive of Scor’s Paris/London hub, who chairs the ILS taskforce, said the Treasury was looking at taxing investors when they exit the ILS structure, with this applicable tax regime being connected to the investor’s domicile and the location of the exposure. Such an approach would provide a potentially more favourable tax regime to investors without reducing UK tax rates. A non-UK-based investor providing capital to insure a risk outside the UK would not be liable to UK tax.