All that is needed for a risk to be capable of being protected by an ILS product is a form of trigger, says Clive O’Connell of McCarthy Denning.
The insurance-linked securities (ILS) sector is perfectly poised to expand beyond the confines of perils related to natural catastrophes in the Gulf of Mexico. It will expand geographically as well as into other areas of risk.
ILS are a good way of protecting the solvency of insurers and reinsurers. Collateralised protections are popular with regulators, as is obtaining protection from a diverse investor base. This applies particularly to companies which are regulated under the ordinances of Solvency II as well as equivalent or similar risk-based capital solvency regimes elsewhere.
The benefits that ILS provide against Gulf of Mexico risks also apply to other natural catastrophe risks to which those insurers and reinsurers are exposed, and equally to other classes of risk entirely.
Clive, O’Connell, Denning, McCarthy, trigger, index, insurers, insurance-linked securities, ILS