The landscape of insurance-linked securities (ILS) continues to evolve. Catastrophe bonds, industry loss warranties, exchange-traded indices, and collateralized risk obligations are increasingly being used to transfer risk from catastrophe-exposed organizations to the financial markets. Industry loss warrantees, sidecars and special purpose vehicles formed by reinsurance companies are offering more ways for hedge funds and private equity investors to participate in the insurance and risk-transfer markets. Investors have identified these financial instruments as opportunities to diversify into assets that have low correlation with their other, more traditional holdings. As a result, annual issuance of ILS increased from less than $200 thousand in 1996 to more than $3.5 billion in 2011.
More than ever, investors need a way to evaluate the risks associated with these instruments from the time they are marketed until they reach maturity. This is a non-trivial task; the structure of the transactions has become increasingly complex and there are more frequent instances of securities that cover multiple regions, multiple perils, or structures that use hybrid payout trigger mechanisms.
Complete Solutions for Investors
AIR Worldwide offers investors robust tools and the latest data to easily and accurately assess the risk associated with the widest range of financial instruments, all within a single platform. AIR tools are designed to quickly assess and control exposure accumulation, perform sensitivity and stress testing, conduct marginal impact analyses and assess the correlations between ILS holdings—a critically important capability as investors’ portfolios grow. With detailed information about every active catastrophe bond in the marketplace, investors gain key insight into their investment decisions.
Listed below are additional materials of interest to issuers and investors in insurance-linked securities: