Overview of the ILS Market Landscape

The ILS market is not a single product but a diverse suite of financial instruments. These products can be  categorised in a few ways:

1. Public vs. Private: Public ILS instruments are bought and sold by qualified investors on a secondary market (like a cat bond). While private ILS is a private, illiquid contract between a sponsor and a small group of investors (much like Collateralized Reinsurance).
2. Tradable vs. Non-Tradable: This is similar to public vs. private. Catastrophe bonds represent the most liquid, tradable segment of the market. In contrast, private ILS transactions are considered “buy-and-hold” instruments.
3. Risk (Peril): Is the instrument covering property catastrophe risk, life/health risk, or casualty risk?

The two primary segments of the market are:

• Catastrophe Bonds (Cat Bonds): These are securities issued via a Special Purpose Vehicle (SPV) and can be traded among qualified investors. They are the most visible and standardised part of the ILS market.
• Private ILS / Collateralized Reinsurance: This is a broad category for all other ILS transactions. These transactions are private, bilateral agreements that are not subject to trading. In fact, this segment is larger than the cat bond market and comprises collateralized reinsurance, Industry Loss Warranties (ILWs), and sidecars

We will explore each of these in more detail on the following pages.