Special Purpose Vehicles / Insurance Linked Securities

Insurance Special Purpose Vehicles (ISPVs)

In March 2015 the Authority introduced regulations (supported by guidance notes) to create a regulatory 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 licenced 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 (together its “participants”) 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.

An ISPV must also be administered by an insurance manager registered under Part 6 of the Insurance Act 2008.

The ISPV application process is designed to facilitate fast licensing, with a target of 5 days or less from a fully completed application.

Transfer of Functions

Pursuant to the Transfer of Functions (Isle of Man Financial Services Authority) Order 2015 (as amended), with effect from the 1 November 2015 –

• regulation 8 of the Insurance (Miscellaneous Amendments) Regulations 2015 makes consequential amendments to the Insurance (Special Purpose Vehicles) Regulations 2015;
• the Insurance (Transitional Provisions) (Amendment) Regulations 2015 provide for transitional provisions in relation to certain information under regulation 18 of the Insurance (Special Purpose Vehicles) Regulations 2015; and
• the Guidance Notes (Amendment) for Insurance Special Purpose Vehicles make consequential amendments to the Guidance Notes for Insurance Special Purpose Vehicles.

Further information

Copies of the above mentioned regulations and guidance notes, and copies of application forms etc. are available on the Legislation and Guidance page.