Catastrophe bonds
Securities issued through an SPV that transfer defined catastrophe risk to investors.
ILS fundamentals
What are insurance-linked securities?
Insurance-linked securities are financial instruments whose value is linked to insurance risk, often catastrophe risk. They allow insurers, reinsurers, governments, and other sponsors to transfer risk to capital markets investors.
Definition
Insurance-linked securities explained
An insurance-linked security is a financial instrument where returns and principal can depend on insurance loss events. In a simple catastrophe bond, an investor earns a coupon for taking defined catastrophe risk. If a qualifying event occurs and the trigger is met, some or all principal may be used to pay the sponsor.
ILS is not one single product. It is a market covering different forms of collateralised risk transfer, each with its own legal structure, trigger, peril, geography, and risk profile.
Common ILS instruments
The main structures
Collateralised reinsurance
Reinsurance backed by collateral, often used for property catastrophe risk.
Sidecars and ILWs
Structures that provide specific market capacity or pay based on industry loss thresholds.
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