Insurance linked securities

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This Overview guides practitioners to core materials on insurance‑linked securities (ILS), with links to legislation, regulatory guidance, precedents and market analysis. ILS sit at the intersection of insurance regulation and capital markets, enabling risk transfer to investors via catastrophe bonds, collateralised reinsurance and similar structures.

Key legal and regulatory considerations include authorisation and supervision of insurance special purpose vehicles, the use of protected cell companies, and compliance with the UK regime under the Risk Transformation Regulations 2017 and associated tax regulations. PRA authorisation and Solvency II requirements, including the fully funded principle and limits on retained risk, are central. Practitioners must also address offering, listing and marketing rules under FSMA, financial promotion restriction, the UK prospectus and listing regimes, and restrictions on retail distribution.

Execution typically focuses on bankruptcy remoteness, limited‑recourse and non‑petition provisions, collateral and trust arrangements, investment mandates for collateral, and trigger design (indemnity, parametric or modelled loss) and associated basis risk. Documentation spans reinsurance or derivative contracts, note terms, agency and custodial appointments, and verification mechanics. Cross‑border issues arise from the choice of domicile (for example, the UK, Bermuda or Ireland), governing law, recognition...

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