Investor Compensation Schemes
Read about how Robertson Low has helped establish a €60m Fund to Guarantee Investments in support of the Investor Compensation Scheme (ICS).
Fundamental considerations common to all Investor Compensation Schemes (ICSs) when developing adequate funding provisions are:
- How to quantify risk, both single and attritional risk exposures
- Identification of an adequate level of funding
- Establishment of a stable funding structure
Often the level of existing reserves falls well below the catastrophic risk exposure with many ICSs having to rely on alternative funding provisions. Some of these alternative provisions are difficult to quantify such as the level of funding that can be relied upon from post loss levies on members and others such as the effect of corporate or sovereign loan facilities which can create solvency concerns and/or seriously undermine an ICSs ability to restore post loss reserves.
A suitable insurance programme can support an ICSs funding structure and protect members from an ICS having to either enforce excessive annual contributions or applying post loss levies required to reinstate depleted reserves or for the repayment of other forms of funding provisions. A suitable, well structured, insurance programme can be a means of raising 'synthetic capital' increasing the ICSs' overall financial resources and therefore improving financial stability and independence which in turn reduces the level of financial exposure for members thus ensuring stability and investor confidence while allowing the ICS confidentially manage their potential liabilities and funding obligations.
For many the deciding factor is that of cost and the extent of cover. A suitable insurance programme should respond whenever the ICS is required to respond, above a predetermined attachment point and subject to a specific limit, however the cost of such a programme is subject to various pricing considerations:
- Composition of members
- Perceived single and attritional risk exposures
- Legislative structure
- Performance history
- Insurance Compensation Limits
- Insurance attachment point
- The maximum compensation per eligible investor
Synthetic Capital, insurance programmes in support of Investor Compensation Schemes are bespoke, highly specialised, insurance placements.
Bespoke insurance programmes are individually designed insurance, or risk transfer arrangements specifically designed to address a client's particular requirements.
The arrangement of a bespoke insurance programme is a highly specialised activity undertaken by a qualified insurance advisor with experience of, and direct access to, specialist international insurance markets. On initial engagement a thorough review of the particular risk profile will be undertaken which will involve a detailed risk mapping and exposure analysis.
The final market submission report is then prepared and will contain the risk analysis and an independent opinion for presentation to a specialist 'lead' insurer who will evaluate the proposal and negotiate indicative terms and scope of insurance cover. At this stage these indicative terms are on a 'leader only' basis which would then need to be supported by 'following' insurers subject to further submission and negotiations in order to obtain the desired spread of risk for the capacity or limit of indemnity required.
