Author(s): Kirill Savrassov

Why educating the industry about ILS is so important

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Insurance-linked securities (ILS) have become a vital part of the reinsurance industry, providing alternative capital for risk transfer, allowing investors to access insurance risks through financial markets, spread catastrophe risks and enhance market capacity.

The key benefits of ILS are clear: greater diversification for investors, reduced reliance on traditional reinsurance and increased capacity to absorb large losses from natural disasters.

Additionally, ILS instruments such as catastrophe bonds offer more flexible and efficient solutions for insurers, helping to stabilise pricing and provide resilience against major catastrophic events.

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ILS provides an attractive, low-correlated return stream to investors. Education on risk characterisation, performance drivers, portfolio fit, the re/insurance cycle, and reserving would help expand the institutional investor base. Continued enhancements in modelling and pricing practices would reassure investors about ILS's long-term prospects.

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