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Neon breaks new ground launching the UK’s first catastrophe bond vehicle

Insurer Neon made a bold move today, launching the UK's..

Insurer Neon made a bold move today, launching the UK's first vehicle for insurance-linked securities (ILS) such as catastrophe bonds.

The firm has set up NCM Re, which has gathered money from third-party investors to make the country's first ILS transaction of $72m (£53m).

ILS are typically linked to natural disasters, offering a high return if a specified incident does not occur but a risk of losing everything if it does.

Read more: Natural disasters are getting more frequent, but cheaper: Could that scare insurers away from emerging markets?

Neon's chief executive, Martin Reith, said the business would now be able to source "bespoke opportunities for investors".

“I am both excited and proud to see Neon making history. Not only is it a testament to Neon’s commitment to doing things differently, but it also underpins our attitude as a business – unafraid to lead the way and embrace change," he said.

ILS allow insurance providers to offload risk, and their return is generally uncorrelated with the state of the wider financial market.

"Our investors will benefit from strong, data-driven risk selection and underwriting alongside a clear focus on delivering targeted returns, while we will look to increase our relevance and offering to clients," said Reith.

Read more: FCA launches review into competitiveness of London's £68bn insurance broker market

Neon's first transaction will underwrite a portion of its property treaty reinsurance, and its direct and facultative portfolios.

Neon is making use of new UK rules surrounding ILS which came into force last year, and allow "protected cell companies" like NCM Re to issue ILS.

The firm, which rebranded from Marketform in 2016, operates in the specialist Lloyd's of London market, and covers areas from property to accident and health.

Read more: Insurance professionals call for change in firms' culture to boost diversity

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