Insurance Linked Securities
This article provides a brief introduction to insurance-linked securities (ILS) as an asset class in order to lay the foundation for the more thorough treatment of individual types of ILS in the rest of the blog. It explains the reasons for transferring insurance risks to the capital markets and the benefits this transfer provides both to the insurance industry and to the investors. The types of insurance risk transferred to the capital markets are also briefly discussed. INSURANCE-LINKED SECURITIES DEFINED In the article Investing in insurance risk, we defined insurance-linked securities as financial instruments , other than traditional equity and debt securities issued by insurance companies, that carry insurance risk or a type of risk that is closely related to it. Examples of the risks included in ILS are those associated with property catastrophe, mortality, longevity and insurance loss reserve adequacy. ILS can also include many of the traditional risks such as market, credit and...