Treading The Fine Line To ILS Success

Insurance-linked securities (ILS) are collateralised products. They are all linked to some kind of collateralised security-whether it's a contractual security, a note, or a preference share, it's linked to something concrete.

In Bermuda we started off with ILS being a 'mom and pop' captive in the 1990s. People said 'I can't have my own captive because I don't have at least one million dollars in net premiums', which at the time was the premium threshold needed to have your own captive. So what did they do? They rented a cell from a rent-a-captive or a transformer or an ILS platform from one of the insurance managers.

At the time insurance managers had a separate account/segregated account, like a class 3, which wrote business on a fully collateralised basis. This was because the business they wanted to write wasn't big enough, it didn't make commercial sense. Those programmes grew over time and then became captives themselves. That was the beginning of ILS in