ILS — 53 terms
ILS
Insurance-linked securities terms covering catastrophe bonds, triggers, pricing, and market structures.
ARC (African Risk Capacity)A specialised agency of the African Union providing parametric insurance to Afri...Attachment PointThe loss threshold at which a cat bond begins to experience principal erosion. L...Basis RiskThe risk that the cat bond payout does not match the sponsor's actual losses, pa...Binary TriggerA payout structure where the cat bond either pays 100% or 0% of principal based ...Calculation AgentThe independent party responsible for determining whether a trigger event has oc...Cat BondA catastrophe bond — a fully collateralised insurance-linked security that trans...CCRIF (Caribbean Catastrophe Risk Insurance Facility)A regional risk pool providing parametric insurance coverage to Caribbean and Ce...CollateralAssets posted by investors and held in trust to secure potential payouts. Typica...Collateralised ReinsurancePrivate reinsurance contracts where the assuming party posts full collateral, ty...Conditional Expected Loss (CEL)The expected loss severity given that a loss event occurs, calculated as EL divi...CorrelationThe statistical relationship between ILS returns and other asset classes. Low co...CouponThe periodic interest payment made to cat bond investors, typically floating rat...DiversificationSpreading risk across multiple perils, geographies, and trigger types to reduce ...Due DiligenceThe comprehensive analysis process investors undertake before investing in a cat...ESGEnvironmental, Social, and Governance factors increasingly considered by ILS inv...Exhaustion PointThe loss level at which the cat bond's entire principal is lost. The layer betwe...Expected Loss (EL)The probability-weighted average annual loss for a cat bond tranche, expressed i...Expense LoadThe component of cat bond pricing covering transaction costs, including structur...Extension RiskThe risk that a cat bond's maturity is extended beyond its scheduled date due to...Green Cat BondA cat bond where proceeds or risk transfer are aligned with environmental sustai...HIM SeasonThe 2017 hurricane season (Harvey, Irma, Maria) — a pivotal event that reset ILS...IBRD (International Bank for Reconstruction and Development)Part of the World Bank Group; facilitates sovereign cat bond issuance through th...Indemnity TriggerA trigger type where the cat bond payout is based on the sponsor's actual incurr...Industry Loss Index TriggerA trigger based on total industry-wide losses from a catastrophe event, typicall...Mark-to-MarketValuing cat bond positions at current market prices, reflecting real-time supply...Mark-to-ModelValuing cat bond positions using catastrophe models and pricing frameworks when ...MaturityThe date at which a cat bond's principal is scheduled to be returned to investor...MEL (Multiple of Expected Loss)The ratio of coupon spread to expected loss, used as a relative value metric acr...Modelled Loss TriggerA trigger based on losses estimated by running actual event parameters through a...Net Risk Multiple (NRM)The ratio of (Spread - EL) / EL, measuring the compensation investors receive ab...New Issue ConcessionThe additional spread offered on newly issued cat bonds versus comparable outsta...Offering CircularThe primary disclosure document for a cat bond, detailing structure, trigger mec...Parametric TriggerA trigger based on physical event parameters (e.g., wind speed, earthquake magni...PCS (Property Claims Services)A Verisk unit that provides estimates of insured losses from US catastrophe even...Peak PerilThe catastrophe risks that generate the largest potential losses and drive ILS m...PERILS AGAn independent organisation providing industry loss data for European and other ...Probability of First Loss (PFL)The annual probability that a cat bond layer will experience any loss, equal to ...Proportional PayoutA payout structure where losses within the layer (attachment to exhaustion) resu...Reg SAn SEC regulation providing an exemption for offerings made outside the United S...Resilience BondA cat bond structure that links risk transfer to pre-event mitigation investment...Risk LoadThe premium above expected loss that compensates investors for uncertainty and t...RoadshowThe marketing process where the sponsor and structuring bank present a new cat b...Rule 144AA US SEC rule that permits trading of privately placed securities among qualifie...SeasonalityThe cyclical variation in cat bond spreads linked to hurricane season (Jun-Nov),...Secondary MarketThe market where previously issued cat bonds are traded between investors, provi...Sharpe RatioA measure of risk-adjusted return: (portfolio return - risk-free rate) / portfol...SidecarA special purpose reinsurance vehicle that provides capacity to a specific reins...SOFRSecured Overnight Financing Rate — the benchmark interest rate used for floating...Special Purpose Vehicle (SPV)A bankruptcy-remote legal entity created to issue cat bonds and hold collateral....SpreadThe coupon margin above the risk-free rate paid to cat bond investors as compens...Structuring AgentThe investment bank that designs the cat bond structure, prepares documentation,...Total Return SwapA swap agreement used in cat bond structures where the SPV exchanges collateral ...TrancheA distinct layer or slice of risk within a structured transaction, each with dif...
Reinsurance — 4 terms
Reinsurance
Core reinsurance concepts including retrocession, cedants, and industry loss warranties.
CedantThe insurance or reinsurance company that sponsors a cat bond or ILS transaction...ILW (Industry Loss Warranty)A reinsurance contract that triggers based on industry-wide losses exceeding a p...ReinsuranceInsurance for insurance companies — a mechanism for insurers to transfer portion...RetrocessionReinsurance of reinsurance — the process by which reinsurers transfer portions o...
Risk Modelling — 7 terms
Risk Modelling
Catastrophe modelling and risk quantification terms used in ILS analysis.
Catastrophe ModelA computer simulation framework that models hazard, vulnerability, exposure, and...Hazard ModuleThe component of a catastrophe model that simulates the physical characteristics...Loss Exceedance CurveA curve showing the probability that losses will exceed any given threshold. Der...Probable Maximum Loss (PML)The maximum loss expected at a given return period (e.g., 1-in-250 year PML). Us...Return PeriodThe average recurrence interval of a loss of a given magnitude. A 1-in-100 year ...Vulnerability ModuleThe component of a catastrophe model that estimates damage to structures and con...Wang TransformA risk-adjustment methodology that converts physical (real-world) loss probabili...
Credit — 12 terms
Credit
Credit and hybrid capital terms including subordinated debt, AT1, RT1, and CoCo instruments.
AT1 (Additional Tier 1)The equivalent banking hybrid capital instrument, featuring contingent conversio...CoCo (Contingent Convertible)A hybrid bond that converts to equity or is written down when the issuer's capit...Coupon DeferralThe ability (or requirement) for an issuer to skip coupon payments on hybrid ins...Hybrid CapitalSecurities with both debt and equity characteristics, including AT1, RT1, and ce...NotchingThe process of adjusting a rating downward from the issuer level to reflect the ...OAS (Option-Adjusted Spread)A spread measure that accounts for embedded options (e.g., call features) in a b...Risk-Free RateThe theoretical return on a zero-risk investment, typically proxied by short-ter...RT1 (Restricted Tier 1)The deepest subordinated insurance debt under Solvency II, featuring perpetual m...Subordinated DebtDebt that ranks below senior creditors in the event of liquidation. Insurance co...Tier 2 CapitalDated subordinated debt that qualifies as regulatory capital, ranking above AT1/...Write-DownA reduction in the principal amount of a hybrid instrument triggered by a solven...Z-SpreadThe constant spread added to the risk-free curve to discount a bond's cash flows...
Cyber — 9 terms
Cyber
Cyber risk and cyber insurance terms covering threats, regulation, and cyber ILS.
Aggregation RiskThe risk of a single cyber event causing correlated losses across many policyhol...Cyber Cat BondAn ILS instrument that transfers peak cyber risk to capital market investors, st...DDoS AttackDistributed Denial of Service — an attack that overwhelms systems with traffic, ...GDPRThe EU General Data Protection Regulation, imposing strict data protection requi...NIST CSFThe National Institute of Standards and Technology Cybersecurity Framework — a w...RansomwareMalicious software that encrypts victims' data and demands payment for decryptio...Silent CyberCyber risk exposure embedded in traditional property and casualty insurance poli...Supply Chain AttackA cyber attack that targets vulnerabilities in third-party software or service p...War ExclusionInsurance policy provision excluding losses caused by acts of war, increasingly ...
General Insurance — 6 terms
General Insurance
Foundational insurance terms relevant to understanding ILS markets.
ExposureThe total value at risk from a catastrophe event, including insured property val...Moral HazardThe risk that a sponsor may behave differently (e.g., less careful risk manageme...PerilThe specific type of natural catastrophe risk (e.g., US Hurricane, Japan Earthqu...PremiumThe price paid for insurance or reinsurance coverage, reflecting the expected co...SCR (Solvency Capital Requirement)Under Solvency II, the capital an insurer must hold to ensure solvency at a 99.5...Solvency IIThe EU regulatory framework for insurance companies, setting capital requirement...
Learn ILS properly with ILS101
Move from definitions into structures, pricing, triggers, reinsurance applications, and specialist risk topics.
Start Learning