ILS products, often seen in the form of catastrophe bonds (cat bonds), industry loss warranties and sidecars – which are financial structures established to allow investors to take on the risk and benefit from the return of specific books of insurance or reinsurance business – cover natural catastrophes such as hurricanes and earthquakes, life insurance, (including mortality and longevity) and man-made events such as fire and terrorism.

ILS returns are thus ‘event’ linked rather than correlated with risks associated with the wider financial markets as are found in traditional investment classes. Value is linked to the occurrence or non-occurrence of specific non-financial risks (e.g. Florida hurricanes). If there is no trigger event (i.e. no natural disaster before the maturity of the security, investors receive their principal investment in addition to any interest earned on the investment during the lifetime of the contract.

The ILS market has been very attractive for both insurers and investors. Insurers can offload risk and raise capital and life insurers can release the value in their policies by packaging them up and issuing them as assetbacked notes. The growing popularity of ILS as an asset class for institutional investors largely stems from the prospect of returns not correlated with equity markets and that investment in ILS provides diversification in an investment portfolio.

ILS fund structures are proving to be particularly attractive to pension funds because they offer the ability to improve a portfolio’s investment performance through uncorrelated investments. As pension funds and other new institutional investors become more familiar with the ILS market and associated risks, they have increasingly been allocating a larger percentage of their investment mandates into this area.

Read More

Share
Twitter LinkedIn Email Save as PDF
More Publications
1 Sep 2021 |

Changes to rules on Permanent Residency Certificates

The Ministry of Labour has recently issued a policy paper, ‘Securing Permanency for Long-Term Resi...

26 Aug 2021 |

What to remember when an employee leaves

Just as when a new recruit is on-boarded, there are a variety of tasks an employer needs to deal wit...

23 Aug 2021 |

BMA seeks more seamless marketplace with ILS process enhancements

Recent changes made by the Bermuda Monetary Authority (BMA) to improve processes specific for catast...

17 Aug 2021 |

ILS Bermuda Executive Roundtable 2021

Despite the impacts of the Covid-19 pandemic and subsequent restrictions on travel and face-to-face ...

13 Aug 2021 |

A digital asset future: closer than we think

Most of us at some point in our lives have participated in a rewards programme either at our favouri...

26 Jul 2021 |

What not to forget when an employee leaves

There are many practical and ‘housekeeping’ matters that employers need to deal with when an emp...

Contributors: Jordan Knight
23 Jul 2021 |

Contributed surplus: it’s not capital!

Last week, in part one, we discussed the meaning of share premium, the various ways a company may us...

16 Jul 2021 |

Share premium: do you have it?

When the issuance of shares by a company is discussed, the first thought that comes to mind is the s...

2 Jul 2021 |

No question you’ll see more life reinsurers in Bermuda

While the emergence of property and casualty (P&C) startups in Bermuda is likely to be muted in ...

2 Jul 2021 |

Bermuda: An introduction to Dispute Resolution

This edition discusses Current Economic Conditions and Dispute Resolution Activity, Trends & Dev...

Contributors: Jordan Knight