While the insurance-linked securities (ILS) industry cannot avoid inflationary effects completely, the structures utilised have some tools embedded that allow ILS managers to tame the effects of inflation on their portfolios, according to Dirk Lohmann, Chairman, Schroders Capital ILS.
In a recent paper, Lohmann gives an insightful overview of the threats inflation can pose to the global insurance and reinsurance industry, explaining how the inflation of values-at-risk and claims quantum can drive impacts to protection sellers, unless properly controlled.
But the industry has some tools at its disposal to counter the effects of economic inflation and specifically in the insurance-linked securities (ILS) market, embedded features in instruments such as catastrophe bonds can work positively to protect investors against inflationary effects.
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