ILS Funds – What Are They?

ILS funds are basically funds that invest in ILS or, in other words, funds that invest in financial instruments and securities whose value are affected by insurance loss events including catastrophe bonds and shares in an underlying reinsurance company. As the value of these securities are linked to risks or events that are non-financial (such as natural disasters and mortality in the case of life insurance), these securities are considered to have little to no correlation to wider financial markets.

As mentioned, ILS funds often are the funding vehicles for Bermuda reinsurance companies which are typically special purpose insurers and Class 3 insurers licensed under the Insurance Act 1978, as amended. In addition, the underlying reinsurance companies are often registered as segregated account companies. ILS funds that would either subscribe for non-voting preference shares or funding notes in the reinsurance company which would be linked to a segregated account. The ILS fund would therefore indirectly participate in a portfolio of reinsurance and retrocessional contracts written by the segregated account of the reinsurer that often covers property catastrophe risk.

Main Legal Structures For ILS Funds

The most common structures for ILS funds include exempted companies limited by shares (including those companies that are also registered as segregated accounts companies) and exempted limited partnerships. ILS funds may also be formed as a unit trust. Unit trusts tend tobe popular with Japanese investors. In addition, Bermuda has recently introduced limited liability companies (LLCs) and this recent addition could also be utilised by ILS funds.

Read More

Share
Twitter LinkedIn Email Save as PDF
More Publications
24 Nov 2022

Information Technology, Outsourcing, Privacy & Data Protection

All aspects of Bermuda's economy rely on information technology and data processing - an essential i...

Contributors: Duncan Card
22 Nov 2022

A Look Back on 2022 and What to Expect for 2023

As we approach the end of 2022, we are able to look back and say with certainty that the arena of la...

14 Nov 2022

When will the court enforce a promise?

As we all know, promises are made and broken all the time. What, if anything, can the law do to assi...

4 Nov 2022

Legally speaking: what not to do when outsourcing operations

In the course of my career, I have drafted, negotiated or otherwise provided commercial and legal ad...

1 Nov 2022

The Insolvency Review – Edition 10

The Insolvency Review offers an in-depth review of the most consequential features of the insolvenc...

25 Oct 2022

Bermuda: Mergers & Acquisitions Comparative Guide 2022

This country-specific Q&A provides an overview to Mergers & Acquisitions laws and regulati...

Contributors: Katie Blundy
24 Oct 2022

Directors’ duties on the eve of insolvency

It is common knowledge that directors of companies owe a duty to the company to act in its best inte...

Contributors: James Batten
13 Oct 2022

Employee probation periods: an update

The Employment Act 2000 is the island’s key piece of employment legislation, applicable to employe...

Contributors: Kiara Wilkinson
6 Oct 2022

Centre Stage: Bermuda’s Role In An Insurtech Revolution

Bermuda is rapidly becoming a focus for insurtechs seeking the island’s expertise, the accessibili...

5 Oct 2022

Bermuda’s Life Marketplace Supports Growing Demands Stemming From Aging Populations

Bermuda’s robust long-term re/insurance sector is well-positioned to support demands for life and ...