For the last several years, participants in the insurance-linked securities (ILS) market have frequently discussed the question of market expansion. In a market with consistently declining property catastrophe yields and plentiful capital, these conversations often turn to the potential of ILS-based products in other lines of business, such as those falling under the category of casualty or liability (including financial guaranty) reinsurance.

Executive Summary

While progress has been made in the development of casualty insurance-linked securities (ILS), there still is significant work to do, says Aaron C. Koch of Milliman, who discusses some of the key structural and product design questions that must be answered before casualty ILS can meet the needs of cedents and capital market investors.

In the wake of the major catastrophes of 2017, the attention in the ILS space has—perhaps justifiably—refocused itself on the rates and new issuances in the property catastrophe space. Investors eager to take advantage of the post-event rating environment have in many cases significantly expanded their capital commitments. If the desired property catastrophe rate increases fail to materialize, however, that capital will either need to be used elsewhere or be returned.

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