Insurance-linked securities (ILS) are a way to access additional financial protection outside the traditional insurance and reinsurance providers, typically through capital markets. ILS are most commonly associated with catastrophe bonds providing reinsurance cover in the event of significant natural catastrophes.
Cyber risk is one of the most discussed new areas of risk for the insurance industry to address. As a relatively new exposure, the development of cyber insurance solutions presents a range of challenges, including specific challenges for those seeking to offer ILS solutions.
Related: The future of work in insurance
|Catastrophe risks and ILS
ILS have made considerable progress within the catastrophe reinsurance market, in part because there is a degree of consensus on the way in which the risks can be modelled. This level of consensus has arisen as data relating to past catastrophes has been analysed and knowledge shared across the market. Therefore, investors in ILS can have some comfort in the pricing of ILS and the assessment of potential risks and returns.
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