The City of London is poised to launch a fresh bid to lure lucrative insurance-linked securities business to Britain.

London’s prestigious Financial Times reported yesterday that the British government had set its sights on attracting the fast-growing sector of the insurance business.

But Bradley Kading, president and executive director of the Association of Bermuda Insurers and Reinsurers, said it was predictable that London would attempt to capture a chunk of the market, especially with a major gap between the need for insurance and take-up, which the industry aimed to close — but that the city could face an uphill struggle.

Mr Kading said: “It’s natural that London is exploring creating an ILS market — it is after all the longest standing centre of insurance underwriting.

“With the enormous need to grow insurance markets to close the protection gap we expect more capital to flow into the business.

“Multiple ILS centres of expertise seem inevitable and London is a logical place for a market to develop.

“Just as Abir members operate out of multiple global business hubs, it seems likely the same will develop in the ILS market.”

But Mr Kading added: “To be successful though you need to bring something new, some innovation or added expertise to the market. Let’s see what London can do.”

Mr Kading was speaking after the British government this week launched a consultation process on a new regulatory regime for ILS.

The market for insurance-lined securities, including catastrophe bonds, has gone up by more than a quarter every year for the past four years.

Bermuda is the global market leader, while Guernsey and Gibraltar, which moved into the market last year, are also active in ILS.

Speaking to the Financial Times, Des Potter, of Guy Carpenter, said: “Less than 10 per cent of ILS capacity is managed in London and no ILS securities are issued from vehicles regulated or administered in London.”

Ben Reid, chief executive of the London Market Group, which represents the city’s insurance and reinsurance sectors, added: “It is not hugely developed outside a couple of centres, which is why it is important for London to be embracing it.

“The threat to London is that our market continues to be static or shrink and that other markets such as Gibraltar pick up the business. We need to make sure we have new skills.”

A report by the LMG and Boston Consulting Group two years ago highlighted the potential growth of insurance capital, but suggested London was likely to lose out to lower tax jurisdictions.

A British government statement said: “With the right framework, London can make a major contribution to the continued growth and development of ILS business.”

The new British regulations are expected to cover the structure, supervision and taxation of special purpose vehicles and the possible development of secondary trading facilities.

The LMG said it hoped the new rules and structure would be in place by the end of this year.

Mr Potter said: “London’s history, depth of talent and reputation will make it an attractive jurisdiction for many global firms.”

But other experts were less sure of the value of ILS for London.

Urs Ramseier, chairman of insurance investment management specialist Twelve Capital, said: “This is a low-value business.”

He added that the location of ILS managers was independent of where the instruments themselves are issued.

And he said: “There are a number of ILS funds in London, but they are not in the top five.”