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November 10, 2017
Robert Cannon comments on Prudential Regulation Authority (PRA)'s guidelines on the London ILS framework.
An excerpt from "Market Mulls Trade-offs From PRA on London ILS," Trading Risk, November 10, 2017:
The PRA will also permit ISPVs to use limited recourse arrangements. Robert Cannon, special counsel at law firm Cadwalader, Wickersham & Taft, said this could allow for vehicles to be treated as fully funded even if during the course of the transaction asset values dipped below potential obligations, so long as there was an initial match on the first day of the transaction. While some said that reinsurance deals could not be counted as assets, there was also a suggestion that they could be used if there was a match between the trigger of the assets and the liability. Under other regulatory regimes, ILS managers sometimes write reinsurance from another vehicle they manage to capitalise a special purpose vehicle, which they may wish to do for capital efficiency purposes.
The PRA's pledge to look at applications on a case-by-case basis was widely welcolmed.
Guidelines on multi-arrangement ISPVs (MISPVs) are particularly attractive as there is no established regime in another EU jurisdiction that offers this set-up, which could be used to quickly to write multiple collateralised reinsurance deals under one vehicle, according to Cannon.