In his second insurance-linked securities (ILS) blog, Clive O’Connell, partner, Goldberg Segalla, talks about the challenges of risk assumption for re/insurers compared with ILS funds.
ILS funds can participate in risk assumption in a number of different ways. They can invest in catastrophe and other bonds, participate in Industry Loss Warranty (ILW) agreements made either as excess of loss reinsurances or as ISDA derivatives; they can add capacity to an insurer or reinsurer through side cars.
In each case a different vehicle is used; either an SPV (special purpose vehicle) or an ISPV (insurance special purpose vehicle) depending on whether the risk is accepted by way of re/insurance or as a derivative or bond or through a protected cell captive (PCC).
ILS funds have great flexibility and can even alter the structure of both the deal and vehicle that they will use for it, midway through negotiations.
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