ILW contracts are just one of the products that are changing the
way the reinsurance market does business. The advent of new sources
of capital into the reinsurance market has led to the growth in
alternative reinsurance protections. But can these allegedly
simpler, cheaper products really offer a true alternative to
traditional reinsurance protection? A number of recent
catastrophes, both man-made and natural, have called into question
the efficacy of ILWs and, in particular, the parties'
respective expectations in the event of a major loss event.
The problems and pitfalls of ILWs
The trigger is the cornerstone of any ILW contract. It must be
carefully selected for the risk in question to ensure that the ILW
contract responds in accordance with the reasonable expectations of
both parties.
