Since the 1990’s there has been a strong growth in the ILS market. Insurance and re-insurance firms looking to offset their risk have increasingly leveraged the financial markets via the securitization of their assets and liabilities.
The ability to package and securitize policies has enabled the insurance firms to pass on their exposure to financial investors, reducing their risk of losses in a capital efficient way (i.e. reduced risk results in a reduction in the level of capital required for existing business thereby enabling them to write more new business with the same level of capital).
The capital providers like these types of securities as they: