London unlikely to capture catastrophe bond market: report

London will struggle to become a home for the catastrophe bond market due to higher taxes and regulatory hurdles compared with offshore regimes, a report by Britain’s department of trade and consultants Grant Thornton said on Wednesday, reports Reuters.

The report pours cold water on British government plans to develop the sector.

London, one of the world’s leading insurance markets, is already a center for investors in insurance-linked securities, a repackaging of insurance risk as debt which is often linked to natural catastrophes.

The British government wants to take this further by making it possible for the bonds to be structured and listed in London, following a report last year showing London losing market share in reinsurance.

The bonds can provide a cheaper alternative to reinsurance and the $20 billion-plus catastrophe bond market is seen doubling in the next five years.

But Britain’s complex corporate tax regime and slow regulatory response times are regarded as a deterrent.

“London is unlikely to become a center for housing insurance-linked securities (ILS),” Grant Thornton said in a statement accompanying its report.

“The tax environment is…seen by many as being too hostile for those looking to establish an ILS onshore in the UK,” the report said.

Britain’s corporate tax rate has been falling but compares with a zero rate for offshore centers such as Bermuda.

Other centers also respond more quickly than Britain to requests to set up business, the report said, pointing out that in Bermuda, “the regulators are able to turn applications around in days, as well as being able to provide listings capabilities for the vehicles”.

In 2014, 85 per cent of the world’s catastrophe bonds were domiciled in Bermuda, the report said.