Martin Davies, chief executive at AHJ Capital Markets, explains the benefits of using ILS to create shareholder value.
The ultimate test of any financial instrument is whether it increases the corporate value of its issuer. Does the instrument improve the quality of the issuer’s earnings? Does it improve return on capital? In short, does it make the shareholders richer?
Since their birth in the mid-1990s, insurance-linked securities (ILS) have provided an efficient risk hedging technique for insurance companies. They now offer a range of benefits, including attractive pricing, innovative structural features and collateralised or other high quality security.
ILS first filled a capacity gap created by massive insured losses. Then they generated sufficient price advantage and creativity to consolidate their position in the market. Can ILS now move up the value chain, creating value for issuers by improving return on capital?
AHJ Capital Markets, ILS