Industry Loss Warranties: the basics


Industry loss warranties (“ILW”) are a form of insurance-linked security used to finance peak, non-recurrent insurance risks, such as hurricanes, tropical storms and earthquakes. The distinguishing characteristic of ILWs is the use of an industry loss index, that is, the payout is dependent on loss suffered by all insurers in connection with a catastrophe event and not just the loss of the insured. This feature allows instruments to

be created and sold on short notice as the parties are only required to diligence the index. In addition, this narrow focus on the index promotes standardization, liquidity and price transparency. ILWs are part of a non-correlated asset class like other insurance-linked securities but are not burdened by the same illiquidity and high transaction costs. As available indices and data quality improves, ILWs offer more nuanced coverage and reduce their traditional weakness, basis risk.

This article broadly explains ILWs: the most common forms; the reasons why re)insurers and investors are attracted to ILWs; shortcomings of ILWs; how ILWs are legally structured and regulated.

LOADING PDF: If there are any problems, click here to download the file.

Written by:

Published In:

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Shane de Burca, de Burca PLLC | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »


Shane de Burca
de Burca PLLC

We are a boutique law firm based in New York City, offering outstanding legal services in focused... View Profile »

Follow de Burca PLLC:

Reporters on Deadline

All the intelligence you need, in one easy email:

Great! Your first step to building an email digest of JD Supra authors and topics. Log in with LinkedIn so we can start sending your digest...

Sign up for your custom alerts now, using LinkedIn ›

* With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name.