European cat bond grant proposals set to be welcomed?

As we reported back in April, the European Central Bank (ECB) and the European Insurance and Occupational Pensions Authority (EIOPA) have highlighted the use of catastrophe bonds as critical to support the supply of catastrophe insurance and reinsurance across the region, while also proposing issuance is brought closer to home.

While traditional insurance and reinsurance solutions, as well as public-private partnership measures are also seen as key, the ECB and EIOPA said that a greater use of catastrophe bonds can help to mutualise climate and catastrophe risk into the capital markets, benefitting European Union countries.

Asking for comments to their discussion paper, the ECB and EIOPA also said that policy measures could be taken, including the provision of incentives such as we see in other domiciles, such as ILS grant programmes seen elsewhere, as well as more efficient and fast regulatory processes.

We understand that feedback has been submitted calling for these European regulators to drive forward such proposals, as market participants in Europe see a significant benefit in a more efficient catastrophe bond issuance jurisdiction within the European Union.

At the same time, grant funding to promote cat bond issuance to cover climate-linked weather exposures is also seen as critical for parts of Europe and lobby groups are pushing these institutions to consider following-up on their discussion paper with some more formal proposals, we’re told.

Within the EU, Ireland and France are the only regulatory regimes with insurance-linked securities (ILS) issuance capability, so far it seems, although of course the UK remains part of Europe despite leaving the Union, and also has an ILS regulatory regime.

But, it seems most likely Ireland could be a beneficiary of any immediate push to make catastrophe bond issuance more efficient or less costly in the European Union, as it makes sense that an existing and established cat bond jurisdiction would be the most immediate to offer any new proposals to sponsors.

It will be interesting to see what, if anything, comes out of the consultation process on cat bonds for Europe.

Historically, there has been a lot of discussion for the potential for cat bonds to help fill coverage gaps, in property risks and also certain specialty lines, within the European Union.

The EU has discussed diverse uses of cat bonds and ILS, including for oil spill risks and nuclear disasters in the past, so any move to make use of catastrophe bonds cheaper and more efficient could see new avenues opened up in time.