Offshore jurisdictions such as Bermuda, Cayman and Guernsey are at the heart of the growth in the Insurance Linked Securities (ILS) market, while onshore locations including Dublin, Malta and more recently Gibraltar are increasingly looking to the potential of the asset class.
ILS have become popular with investors as an alternative asset class, and with insurers as a means of accessing greater quantities of affordable risk transfer capacity. ILS enable an insurer to purchase additional protection for low frequency high severity losses, including natural and non-natural perils, operating in the traditional insurance market, typically in the form of catastrophe (CAT) bonds, collateralised reinsurance or industry loss warrants.
Investors are attracted to ILS because returns are non-correlated with the general financial markets. Although specialist cat funds remain the largest investors in ILS, mutual funds including pension funds and institutional investors have increased their participation in this asset class significantly.
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