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.
ILS, Blog, Clive O'Connell,