The report explores the prospects of ILS and looks at similarities with other types of securitisation, especially structured credit products. It provides also an overview of the ILS market, its development and the investor structure.
Securitisation and the ‘originate-to-distribute' model in banking had been identified as a major cause of the current financial crisis.
The report explores the prospects of Insurance Linked Securities (ILS) and the challenges associated with it. ILS should have the positive effect to increase the potential for absorption of massive losses. However, information asymmetries pose a certain problem that has to be taken into account with these very complex and non-standardised transactions.
The report explores similarities of ILS with other types of securitisation, especially structured credit products and provides an overview of the ILS market, its development and the investor structure.
Regarding the regulatory issue, the present supervisory regime (Solvency I) is relatively restrictive in its recognition of ILS, the future regime (Solvency II) is likely to give more recognition to ILS as effective tools of risk mitigation. Nevertheless, supervisory authorities need to be satisfied by the insurance undertakings that the intended risk mitigation from the use of ILS is indeed present.
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CEIOPS-ILS-Report-Spring-2009.pdf
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