Insurance-linked securities

We are a leading player in the insurance-linked securities (ILS) sector. ILS are capital market instruments, typically in bond or derivative format, designed to meet the risk or capital management needs of a transaction sponsor. In exchange for a coupon or premium payment, the sponsor receives single or multi-year collateralised protection for specified risk events. If such an event occurs, the sponsor receives all or part of the principal; otherwise this is paid back to the investors in full at maturity.

ILS are particularly well-suited to provide protection against peak risks – events that happen infrequently but tend to lead to large losses, for example earthquakes or windstorms. ILS are used for both risk and capital management purposes in the P&C and the L&H business. For reinsurers they are attractive because they free up scarce capital; for insurers and corporate clients they provide multi-year collateralised protection; and for investors they offer attractive diversification possibilities, as they are relatively uncorrelated with other asset classes.

In 2016, our registered broker-dealer subsidiaries arranged non-life ILS worth USD 1.33 billion, all of them for clients. This was equivalent to about a fifth of total new issuance in the nonlife ILS market.